Hopes for resurgence in the broader economy might be fading, but that hasn't dimmed analysts' expectations for healthy growth in the housing sector, particularly when it comes to new construction.
In a report released Tuesday, Goldman Sachs analyst Joshua Pollard echoed encouraging builder confidence numbers, predicting that a combination of factors—including new government mortgage policies and a tight inventory of previously-owned homes for sale—could drive as much as a 30 percent annual growth in new home sales over the next few years.
But the landscape of the U.S. home building industry looks different in the wake of the worst housing decline in recent history. Although small private building firms far outnumber public mega corporations, tight credit environments and years of anemic demand have taken their toll on the little guys.
"The dynamic has changed," says David Crowe, chief economist at the National Association of Home Builders. "Large public builders have access to capital through their own balance sheets, rather than having to borrow. That gives them an advantage in acquiring the few developed lots."
Developed lots are in high demand since they require little prep before builders can sink in the first shovel. Having the cash on hand to scoop up those lots remains an important competitive advantage in today's home building environment, and one that could continue to shove smaller builders to the side.
According to Pollard, the 11 public builders Goldman Sachs tracks gobbled up 27 percent of the market share in 2011. Their presence in the 25 largest metro areas was even more prominent, with just a handful of public builders laying claim on almost 40 percent of the market in those areas.
That trend is likely to continue, he says, given public builders' already dominant share in the hottest markets around the country, their strong balance sheets, and their ability to raise money from capital markets.
Still, some experts see an important niche for smaller, private builders, one that's too difficult or "not profitable enough" for big builders. An increasing number of house hunters looking for new constructions want the best of both worlds: a brand new home and proximity to work, entertainment, and shopping hubs.
In general big builders are more suited to buying tracts of land, establishing subdivisions, and stamping out dozens of homes. But finding large pieces of land close in to town is becoming increasingly difficult and would-be home buyers are less keen on giving up proximity to the city center for that new-home smell.
That's where smaller, private builders come in. Not only do they tend to be more custom builders, they're better situated to do what's called "infilling," says Celia Chen, senior director at Moody's Analytics.
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"Smaller builders are better suited to building in more mature areas where there might be just a lot or two between houses," Chen says. "With some of the trends in demand for housing, that might be positive for that type of building."
But whether a large public builder, or a tiny private business, a firm foundation seems to be poured for the building industry's revival, analysts say. Still, there's some concern whether the industry is prepared to handle it.
Employment for construction workers is down 70 percent since 2006 when the industry was at its peak. While jobs are returning to the sector, it's slow going—gains are only about 1 percent off the bottom—which could moderate the gains the construction industry sees over the next few years.
"That has bearing on the ability of home building to ramp up the production of homes going forward," Chen says. "We're seeing firming in demand, [and] inventory of new homes available for sale is at a record low. As demand picks up, builders are really going to have to start putting up homes."
Meg Handley is a reporter for U.S. News & World Report. You can reach her at firstname.lastname@example.org and follow her on Twitter at @mmhandley.