More Home Builders Pivot to Entry-Level Product

July 18, 2019
neighborhood of houses
Photo: Unsplash/Maximilliam Conacher

As Millennial home purchases pick up, more builders are making efforts to add affordable, entry-level products to their portfolios, Forbes reports.

“Normally the first-time homebuyer group leads the pack in a housing recovery, and the move-up group fills in later,” said Jeff Mezger, CEO of KB Home. “This time around, it was flipped; the millennials delayed buying for a decade, and the industry was fed by the move-up segment. Now, we’re finally starting to see a normal housing recovery.”

KB Home has always focused heavily on the first-time homebuyer audience, so this is nothing new to them, but the first-time segment is growing rapidly for that company. Mezger noted that 55% of KB’s new home deliveries in the second quarter of 2019 were to first-time home buyers, which is the highest percentage in a decade (KB had been tracking 50%-52% for a long time). Mezger attributes some of their success in attracting first-time homebuyers to KB Home’s built-to-order business model which allows more personalization than some other builders.

D.R. Horton, the largest homebuilder in America, has pushed the envelope with regard to building homes that first-time homebuyers could afford. They have offered homes in the sub-$200,000 range through their Express Homes brand for five years now. Their success stimulated other homebuilders to start building smaller, more price-effective homes. Very few can compete and be profitable at that price point, particularly with lot and land prices at levels near the bubble peak, but many are nonetheless reaching lower price points than they had historically done.

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