LGI Homes Navigates Headwinds

THE WOODLANDS – (Realty News Report) – LGI Homes capped off a profitable year with a slow-down in the fourth quarter as its home closings dropped almost 26 percent due to supply chain, labor, inflation and production issues.

Home builders around the nation have faced problems with rapid price increases in building materials and extreme delays in obtaining lumber, windows, garage doors and other necessary ingredients for building homes.

Extremely volatile building-material prices meant some builders underestimated construction costs in this unprecedented era.

LGI Homes, based in the Houston area, has been expanding rapidly across the nation in recent years selling homes to many first-time home buyers and investors.

Fourth Quarter Decline

Although LGI Homes had a profitable 2021, the fourth quarter results were down. Its quarterly net income decreased 18.4 percent to $111.3 million. Fourth quarter home sales revenues decreased 10.7 percent to $801.1 million, LGI reported. And 2,526 home sales were closed in the fourth quarter, a 25.9 percent decline from the fourth quarter of last year.

“During the year, we managed through numerous headwinds including input price volatility, product delays and labor shortages. As a result, our construction and land development timelines extended, slowing our pace of deliveries and delaying the availability of new and replacement communities,” said LGI CEO Eric Lipar.

For the year, LGI Homes closed a record-breaking 10,442 home sales resulting in home sales revenue of $3.1 billion, up 28.8 percent from 2020.

Home Prices Up 20 Percent

Home prices escalated as 2021 advanced toward inflationary times. By the fourth quarter, LGI’s average sales price was $317,132, up 20.4 percent from the fourth quarter of 2020.

Rapidly rising building costs present a challenge to the home building industry. Building material costs for a typical home were up 21 percent in 2021, National Association of Home Builders Chief Economist Rob Dietz said last week at the builders annual convention in Orlando.

But it wasn’t just the cost that put a kink into the construction system. Delivery delays were significant, adding four to eight weeks to the typical seven months it takes to construct a house, Dietz said.

Tapping the Brakes on Sales Pace

LGI Homes changed tactics to adjust to the Covid-era marketplace, which brought out home buyers in record numbers. And those changes resulted in LGI’s fourth quarter results.

“What happened at the start of the pandemic is we got way ahead of ourselves and we sold our houses (in the permitting stage or earlier, before house was actually under construction) and we didn’t build an enough inflation target,” Lipar said in a call with industry analysts. “So to protect our margin and make sure we can also deliver a house to a customer on the date we agreed to deliver that house we … decided not to put a house up for sale until that house has started. Because once the house has started, essentially, we know and are comfortable that our team will deliver that house on time, and we’re also comfortable that we understand all the costs involved so we can price it accordingly. So we’re just taking out some of the margin and timing risk.”

The supply change problems will not dissolve quickly and 2022 will be a year of inflation and rising mortgage rates. But Lipar is confident about LGI.

“Our achievements in 2021 reflect the unprecedented strength of the housing market and our ability to deliver outstanding results despite the numerous challenges that impacted our industry,” Lipar said. “Tight supply chains, labor shortages, rising input costs and a limited supply of available lots were challenges that resulted in input price volatility and long delays in construction and development time lines. We expect these dynamics will continue until lead times and product availability normalize.”

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