The Giant 400: The Year That Was 2007

With continuing coverage of Professional Builder's "Giant 400" listings of the country's homebuilders, editor Bill Lurz demonstrates that the pain of the housing bust actually hit the largest builders the hardest. There are even whispers that a prolonged slump lasting until 2010 would wipe out half of the country's top 10 builders:

It was probably inevitable that a housing boom that lasted 13 years would end with a cataclysmic contraction. And this is certainly one of those, a dangerous beast that will devour home building companies large and small. "It reminds me of the late '80s in Texas," says Don Horton, leader of our new No. 1 builder, Fort Worth, Texas-based D.R. Horton, "only this time, it's all across the country."...

Horton regained the top of the housing industry by strategically retreating, shrinking rather than growing. After becoming the first builder to ever top 50,000 closings (in 2005), and doing it again the next year, D.R. Horton fell to 37,717 closings in fiscal 2007 (-29.4 percent) and $9.6 billion in revenue — 34.1 percent less than the $14.5 billion it banked in 2006. Horton has cut its payroll by 60 percent since the peak of the market in 2005.

Miami-based Lennar Corp., last year's No. 1, fell farther, dropping 32.9 percent in closings to 33,283, and dropping 36.3 percent in revenues to $9.5 billion — to land at No. 2. Dallas-based Centex Corp., Bloomfield Hills, Mich.-based Pulte Homes and Los Angeles' KB Home round out the top five, the publicly held group of huge companies we used to call Supernovas. All are now losing ground at an astonishing rate. None of them look particularly super these days.

As the overall ranking shows, this downturn is hitting the largest giants hardest, and the bottom line is that non-giants are gaining market share of total U.S. housing completions for the second consecutive year. That trend is likely to continue...

A year ago, we were amazed at how a housing market downturn reshuffled the Giant 400, noting that 154 builders dropped five positions or more, and 137 rose by at least five slots. Of course, we had no idea then that this year's rankings would make that volatility pale in comparison. This year, 108 builders rose by 20 or more positions, and 86 dropped a similar distance...

Last year, the theme of our coverage of the Giant 400 was the "selective" nature of the housing downturn — that Texas and the Carolinas were untouched in 2006, which allowed builders in those states to climb the rankings at the expense of many in California and Florida. This year, it's obvious that Texas and the Carolinas have not escaped the downturn, but builders there are still relatively better off. And we can also see that rental housing is beginning to act counter-cyclically to for-sale housing. Run your finger down the rankings poster in search of firms with big position increases. You'll find most are either rental housing specialists or Texans...

And here's the shocker: some Texas builders are growing — a few of them by a lot. Examples include Austin entry-level specialist Main Street Ltd., which climbed 53 places (from 205 to 152) on the strength of unit growth from 991 to 1,008, with revenues up from $126 million in 2006 to $133.1 million in 2007. And Peter Shaddock's Sotherby Homes rose 71 spots (192 to 121) as Dallas closings went from 306 to 383 and revenues from $132.3 million to $163.6 million...

The Giant 400:

Professional Builder calculates the Giant 400 rankings by using a two-step process. First, the top 400 production building firms are ranked according to housing units closed in the previous calendar year (or the company's most recent fiscal year). This year, the 400th company closed 82 homes in 2007 (down from 115 last year). But since dollars — not units — are what builders put in the bank, we do another sort, by revenues, to finalize the rankings.

The editors of PB believe this two-step process is a better way to identify the true giants of housing rather than a one-step sort based on either revenues or units. Revenue, after all, is the way the world measures the size of any business. But down at the bottom of the list, we think true production builders should make it into the rankings at the expense of high-end, semi-custom builders with high average sale prices but few units.