PulteGroup Pivots to Build-to-Order Homes for Higher Margins

PulteGroup, the third-largest homebuilder, is strategically shifting its business model to prioritize build-to-order (BTO) homes over speculative starts, a move designed to enhance profit margins and sales efficiency. This pivot is particularly aimed at attracting move-up and active adult buyers who value customization and possess the financial capacity to purchase despite current market conditions.

The company's second-quarter earnings call, held on Wednesday, revealed that this strategy, initiated at least a year ago, is gaining momentum. In Q2, PulteGroup's order mix stood at 45% BTO and 55% speculative. This represents a significant increase from the same six-month period last year, when BTO orders accounted for only 39% of the total, according to Pulte President and CEO Ryan Marshall. The company aims to achieve its historic product mix of 60% BTO and 40% speculative by sometime next year.

Despite macroeconomic uncertainties, global tensions, and interest rate volatility, PulteGroup reported an increase in orders across all buyer segments during the second quarter. The company also maintained resilient margins and saw an uptick in units in backlog. However, the quarter was not without its challenges, as revenues decreased by 11.6% year over year, and the average sales price also declined.

To support this shift, PulteGroup is also focusing on managing its inventory of finished speculative homes. Executives have set a target of maintaining between 1.0 and 1.5 finished speculative homes per community. Currently, the company is operating within this range, with an average of 1.3 homes per community.