Key facts
- PulteGroup is increasing its focus on build-to-order (BTO) homes to enhance margins.
- The company aims for a 60% BTO and 40% spec home mix by next year.
- In Q2, BTO orders represented 45% of the mix, an increase from previous periods.
- Average sales price decreased by 3% year over year, though gross margins improved sequentially.
- Construction costs have fallen 5% over the past year, and build cycle times have reduced to about 100 days.
PulteGroup is strategically shifting its business model to favor build-to-order (BTO) homes over speculative builds, aiming to enhance margins and sales pace. This pivot is supported by reduced construction cycle times, which have fallen to approximately 100 days, allowing the company to better align starts with sales and reduce reliance on spec inventory.
The company's goal is to achieve a historic product mix of 60% BTO and 40% spec by next year. In the second quarter, the order mix stood at 45% BTO and 55% spec, an improvement from previous periods. This strategy is particularly beneficial for move-up and active adult buyers who value customization.
Despite macroeconomic uncertainties, global tensions, and interest-rate volatility, Pulte reported increased orders across all buyer groups. However, revenues fell 11.6% year over year, and the average sales price also declined by 3% to $544,000. Nevertheless, gross margins improved sequentially to 25%, and incentives as a percentage of the total sales price decreased to 10.4%.
Pulte has also focused on reducing construction costs, which have fallen 5% over the last year. Executives noted that while incentives may remain elevated due to affordability challenges, they are lower for BTO orders. Concerns remain about potential cost increases, particularly in lumber and oil prices, which could impact land development and overall construction costs.