The latest construction industry trends show that in Q4 average profit margins rose, home building projects took longer to complete, home builders started more projects, and most projects used fixed price construction contracts.
See the full findings from CoConstruct’s Q4 2021 industry analysis below.
Average profit margins up 3.3% in Q4
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The latest US residential construction industry trends show that projects across the board had higher average profit margins per project in Q4 than in Q3 of 2021. Across all project price points the average profit margins per project increased 3.3%, or $4,646, quarter-over-quarter and 3.5%, or $5,367, year-over-year. Residential construction projects priced between $250K-$500K had the biggest quarterly increase in average profit margin with 5.2%, or $4,381, more profit per project.
All project price points also saw their highest average profit margins of the year in Q4 except for projects priced over $1M which peaked earlier in Q2. These three to four quarter construction industry trends are likely a result of residential construction seasonality more than any other industry factors, however profit margins in 2022 will indicate how much of a factor inflation, which has increased residential construction costs 19% since December, will play in net profits going forward for contractors.
Home building projects took on average four more business days to complete in Q4
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Home building projects across the board took on average four more business days to complete in Q4 than Q3 of 2021. In individual price groups, however, there were more distinct home builder trends within the industry. For instance, home building projects priced above $1M and between $250K-$500K both saw their average project duration increase from Q3 to Q4 while projects priced between $500K-$1M saw their average project duration decrease.
Over the last year more overarching construction industry trends have emerged as well. The amount of time to build a custom home priced over $1M has been fairly consistent the past three quarters with only a two or three business day difference quarter-to-quarter. Home building projects priced between $500K-$750K also saw consistent project duration the last three quarters with only a slight downward trend. But for home building projects priced between $250K-$500K and $750K-$1M there were more quarterly changes in duration. Projects priced between $250K-$500K saw quarterly swings of 3% to 8% while projects priced between $750K-$1M saw quarterly swings of 5% to 7%. Both of these price groups could be affected by some level of seasonality of home builders in CoConstruct’s database and the fact that less expensive, and likely smaller sized, home building projects priced between $250K-$500K are more susceptible to seeing larger swings in average duration caused by length delays than larger and longer projects.
CoConstruct home builders started more projects in Q4
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Residential construction industry trends for project starts suggest that the hyper demand of 2020-2021 may be in the rearview mirror. The average number of projects started per quarter for CoConstruct home builders increased from Q3 to Q4 but still fell way short of the Q1 2021 peak. This drop, however, doesn’t reveal industry wide pessimism but instead reveals a return to pre-pandemic normalcy, a sentiment positively echoed by home builders in our 2022 residential construction forecast.
CoConstruct home builders continue to outpace national average
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Taking project start data from CoConstruct and comparing it with data from the US Census Bureau on the number of home building firms and quarterly project start data helps show the differences between CoConstruct builders and their fellow builders across the country. While CoConstruct builders have been more prolific over the last eight quarters, national builders have begun to close the gap. However, the way CoConstruct and the Census Bureau track project start data could show that this gap is not a gap at all but simply an early indicator of the direction of project starts.
The Census Bureau and the Department of Housing and Urban Development count a project start when a shovel hits dirt and onsite construction begins. CoConstruct, on the other hand, counts a project start when a client signs a contract. This can result in the construction industry trends indicated in CoConstruct project start data being an early indicator for where national home building trends will go in the coming months. This is also shown by CoConstruct’s project start peak in Q1 of 2021 being followed by consecutive quarters of growth by national builders even though CoConstruct data decreased in that same time frame.
Fixed price, or lump sum, contract usage remains steady across price points
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Most residential construction projects in 2021 used fixed price construction contracts. Lower priced projects were much more likely to use fixed price projects than projects priced over $1M which only used them roughly half the time. These residential construction trends have been fairly steady over the past year with virtually no variation among smaller projects and only projects priced over $1M seeing some usage movement. This seesawing for larger projects is likely a result of construction seasonality among CoConstruct builders than any other larger industry trends.
Notably, projects in CoConstruct use either fixed price or open book, cost plus, contracts so the inverse of this graph also shows the steady, albeit lesser, usage of open book contracts the past year as well.
Where we got our numbers from
CoConstruct helps over 100,000 building professionals manage clients and trade partners, schedule work, track financials, and more. Aggregating and analyzing the data builders input into the system, CoConstruct can identify trends and highlight emerging issues in the residential construction industry. By using and sharing this information CoConstruct is doing its part to eliminate the chaos of project management and help create rewarding experiences for both home builders and clients.
