As that table shows, most large homebuilders have diversified operations. As a result, they build homes to meet the needs of several buyer groups across many states.
However, while all boast diversification, a closer inspection of each homebuilder will tell a fuller picture of their primary focus. For example, 45% of PulteGroup's sales are to move-up buyers compared to 29% to first-time (entry-level) buyers and 26% to the active adult market. Contrast that product mix with Century Communities, which boasts delivering 80% of its homes to entry-level buyers.
Meanwhile, even though most builders operate across several states, many concentrate on specific geographical regions. For example, 45% of KB Home's homebuilding revenues come from West Coast (California/Washington) markets, compared to 17% from the Southwest (Arizona/Nevada), 27% from the Central region (Colorado/Texas), and 11% from the Southeast (Florida/North Carolina).
Those variations are worth noting because of some overriding trends driving the strongest demand for housing. The biggest trends are accelerating migration to Sun Belt states like Texas, Florida, Arizona, and North Carolina, driven by millennials seeking affordable housing. Because of that, homebuilders with significant operations in the South and a focus on building entry-level homes should thrive in the coming years.
With that in mind, here are three top homebuilding stocks that stand out as among the best-positioned for these housing tailwinds.
Top homebuilding stocks
While KB Home gets 45% of its revenue from the West Coast, that's mainly due to a higher average selling price in those high-cost markets. Overall, that region only accounts for 31% of its deliveries, meaning 69% of its deliveries are in other markets, notably faster-growing Sun Belt states like Arizona, Texas, Florida, and North Carolina.
On top of that Sun Belt focus, KB Home primarily caters to entry-level buyers. In the first quarter of 2021, 65% of its deliveries were to first-time buyers, compared to 17% for first move-up, 7% for second move-up, and 11% for the active adult market. That dual focus on building more affordable homes in fast-growing Sun Belt markets positions KB Home for strong growth in the coming years.
Finally, the company already controls a lot of land in those markets to support its growth. At the end of 2021's first quarter, it held nearly 70,000 home lots, 60% owned and 40% optioned. That gives it the land needed to deliver growth in 2021 and 2022, with the optionality to adjust to changes in the homebuilding market in the future.
LGI Homes also has a significant presence in the Sun Belt region, including Texas, Arizona, Florida, Georgia, New Mexico, North Carolina, South Carolina, Tennessee, Alabama, Nevada, and Virginia. Florida is one of its biggest markets at 13% of its deliveries. Meanwhile, other states in the Southeast make up 26% of its deliveries, while the Central region that includes states like Texas made up 39% of deliveries.
Further, LGI Homes' target customers are current renters and first-time homebuyers. The company aims to build homes that are an affordable alternative to renting. It also markets directly to renters to convert them into new homeowners.
Another aspect of its affordability-focused strategy is building single-family rental (SFR) homes that it sells to investors. This wholesale business represented 9.1% of its total closings in 2020.
LGI Homes has a balanced approach to inventory management. It controlled more than 67,000 lots at the end of 2021's first quarter, 57% of which it owned, with the rest controlled through options. That gives it a large yet flexible inventory to adjust quickly to market conditions.
Lennar is a large-scale homebuilder focused primarily on building entry-level homes (40% of the total) in fast-growing markets, mainly in the Sun Belt region. Roughly 29% of its deliveries are in Florida, 16% in Texas, 13% from the Southwest, and 10% from the Carolinas region.
What sets Lennar apart from other homebuilders is that it has a leading market share in most of the markets it operates. It holds the No. 1 market share positions in fast-growing Southern cities Phoenix; Orlando, Florida; Charlotte, North Carolina; Tampa; Raleigh, North Carolina; Miami; and Charleston. Meanwhile, it's the No. 2 or No. 3 builder in several other fast-growing Sun Belt markets, including Dallas; Houston; Austin, Texas; Jacksonville, Florida; and Atlanta.
The company has an extensive land inventory to support continued growth, owning or controlling more than 300,000 homesites. That gives it lots of optionality to capture growth in those markets as well as new opportunities.
One market segment that it's starting to tap into is SFR. It recently joined several institutional partners in launching the Upward America Venture. The partnership will invest up to $4 billion in acquiring SFR properties across the country from Lennar and other homebuilders. Lennar's direct involvement and extensive homesite pipeline give it the upper hand over competitors to steadily sell homes into this partnership.
Well-positioned for two housing mega trends
As a whole, homebuilding stocks should thrive in the coming years as the nation builds more homes to meet increasing demand from millennial buyers. However, those focused on building entry-level homes in fast-growing Sun Belt markets should grow faster than rivals. That's why KB Home, LGI Homes, and Lennar stand out as the best homebuilding stocks to buy these days.