The Association of Professional Builders (APB) released its 2022 State of Residential Construction Report, which found members are optimistic about their businesses even as U.S. economists warn of a possible recession.  While that means more doors and windows may be needed to meet remaining demand, the association points to a number of considerations of which builders must be mindful if they want to remain successful.

As material costs and labor shortages continue to impact the industry, nearly 69% of U.S. homebuilders are taking on more than a dozen projects per year, the report notes. At the same time, wise financial and logistical planning will breed continued success in a time of turmoil for the industry, APB officials suggest.

“Smart builders must factor in extended lead times, material price increases, and labor shortages. These factors are all combining to erode what little margins builders have left in their projects,” says Russ Stephens, co-founder of APB. “The residential homebuilders who will continue to succeed are the ones that have a good understanding of their financials …”

The National Association of Home Builders (NAHB) notes that those conditions, in addition to higher mortgage rates, have resulted in challenges to both supply and demand. Residential construction material costs have increased 19% year-over-year and mortgage rates are pricing potential first-time buyers out of the market.

NAHB also addresses the “cautious stance” taken by builders. According to the report, 55% of surveyed homebuilders project marking up their jobs by 25% or more based on profitability in 2022.

“Six consecutive monthly declines for the HMI [Housing Market Index] is a clear sign of a slowing housing market in a high inflation, slow growth economic environment,” says NAHB chairperson Jerry Konter. “The entry-level market has been particularly affected by declines for housing affordability and builders are adopting a more cautious stance as demand softens with higher mortgage rates.”

APB also highlights the importance of industry marketing as housing demand begins to wane.

“Sales have been relatively easy for builders to achieve over the past two years due to unprecedented demand, which has led to a reduction in marketing activity for most building companies,” says Stephens. “However, as demand softens, it’s important that companies factor in the long sales cycle in the industry. This means they need to be generating opportunities right now in order to still be signing contracts in six to 12 months’ time.”