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Housing

US Homebuilders Face Affordability Challenges Amid Declining Sales

Strategic Insights

— 2 min read

US homebuilders are experiencing rating momentum, but housing activity is decelerating due to persistent affordability issues, low consumer confidence, and higher mortgage rates. The sector's EBITDA margins are expected to decline, but large builders have maintained strong balance sheets and market share. Despite this, Fitch Ratings has lowered its housing KPI forecasts and reduced its US home price forecasts, citing higher mortgage rates and slower demand.

Key Takeaways:

  • Several US homebuilders, including Lennar Corporation, PulteGroup, Inc., Toll Brothers, Inc., and Dream Finders Homes, Inc., have maintained strong balance sheets and financial flexibility despite decelerating housing activity.
  • Large public homebuilders have gained market share from smaller competitors, thanks to better access to funding and the ability to offer mortgage rate buydowns through financial service subsidiaries.
  • The sector's EBITDA margins are expected to decline by 250-300 bps in 2025, with median margins coming under significant pressure due to higher mortgage rates and reduced sales.
  • Fitch Ratings has lowered its housing KPI forecasts, with new home sales growth expected to decelerate to 1.5% in 2025 from 2.6% in 2024, while existing home sales are expected to rise by 2%.
  • The spread between 10-year Treasuries and 30-year fixed rate mortgage rates is expected to remain wide due to inflation uncertainty, with the Fed potentially cutting rates in 4Q25.
  • High mortgage rates and continued home price growth continue to impact affordability, with Fitch expecting limited supply to support home price growth of 1.5%-3.5% in 2025.
  • Northeastern states have seen faster home price growth than southern states, which have higher new home inventory.
  • Many large homebuilders have shifted towards a 'land-light' strategy, which reduces working capital requirements but increases land costs, making it harder for small private homebuilders to obtain financing.

Statistics:

  • Fitch Ratings expects median EBITDA margins to decline by 250-300 bps in 2025, from 12.5% in 2024.
  • New home sales growth is expected to decelerate to 1.5% in 2025 from 2.6% in 2024.
  • Existing home sales are expected to rise by 2% in 2025.
  • The spread between 10-year Treasuries and 30-year fixed rate mortgage rates is expected to remain wide, potentially impacting affordability.
  • Home price growth is expected to be 1.5%-3.5% in 2025, with limited supply supporting growth.

Sources:

  • Fitch Ratings commentary on US homebuilders, no date provided.
  • Fitch Ratings press release, "Fitch Ratings Revises Rating Outlooks to Positive for Lennar Corporation and PulteGroup, Inc.", no date provided.
  • Fitch Ratings report, "US Homebuilding: Affordability Challenges Continue", no date provided.

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