United Homes Group: A Strategic Pivot in the Housing Market

United Homes Group, Inc. (NASDAQ: UHG) has released preliminary operational statistics for Q4 and full-year 2024, revealing a strategic pivot in the housing market. The company reported a 19.4% increase in Q4 net new orders and a 7.0% rise in closings, indicating strong demand for its products. However, starts decreased by 26.5% due to a major house plan redesign initiative. For the full year 2024, net new orders increased by 7.9%, while closings grew by 3.5%. Starts declined by 7.5%, and total inventory decreased by 26.3% year-over-year, with spec inventory down 30.0% and backlog inventory down 16.9%.

The 19.4% increase in net new orders and 7.0% rise in closings in Q4 2024 indicate a strong demand for United Homes Group's (UHG) products. This growth can be attributed to the company's strategic focus on selling homes before completion, reducing inventory holding costs, and improving inventory turns. Additionally, the major initiative to introduce redesigned house plans that better align with consumer needs and desires has contributed to the increased demand. The company's emphasis on high-growth markets in the Carolinas and Georgia, combined with the first major redesign initiative in years, positions UHG for potentially stronger performance in 2025.

The 26.5% decrease in starts in Q4 2024 signals a strategic pause in production to facilitate a major house plan redesign initiative. This initiative, involving over 20 redesigned home plans, is aimed at making the product offering more competitive and aligned with current consumer needs and desires (Pirrello, 2024). The temporary slowdown in starts allows UHG to finalize these new plans and prepare for construction, which began in December 2024. This strategic move is expected to improve the company's product offerings and potentially boost sales in the future. However, it may also lead to a temporary reduction in inventory and a shift in product mix, which could impact near-term margins.

The 26.3% year-over-year reduction in total inventory, with spec inventory down 30.0% and backlog inventory down 16.9%, reflects UHG's strategic shift towards pre-selling homes before completion. This approach aims to reduce holding costs and improve inventory turns, as stated by Interim CEO Jamie Pirrello: "Our focus is on selling homes before they are completed, reducing inventory holding costs and improving inventory turns." The significant decrease in spec inventory aligns with industry-wide trends of more disciplined inventory management, indicating UHG's responsiveness to market dynamics. Despite the temporary slowdown in starts due to the house plan redesign initiative, the company's inventory management strategy appears to be successful, as evidenced by the 130.8% increase in finished backlog inventory and a 22.1% reduction in spec finished homes. This strategy reduces risk exposure and potentially improves cash flow, positioning UHG to capitalize on strong underlying demand in its markets.

The shift towards pre-selling homes has a positive impact on UHG's cash flow and carrying costs. By selling homes before completion, UHG reduces holding costs and improves inventory turns (Pirrello, 2024). This strategy also reduces risk exposure, as the company is not responsible for the entire cost of construction until the home is sold. In comparison, building spec homes requires UHG to bear the full cost of construction upfront, which can tie up capital and increase carrying costs. The 130.8% increase in finished backlog inventory and 22.1% reduction in spec finished homes suggest successful execution of this strategy (UHG, 2024). However, the heavy use of incentives and mortgage buydowns may pressure margins, despite driving volume.

In conclusion, United Homes Group's strategic pivot in the housing market, characterized by a focus on pre-selling homes and a major house plan redesign initiative, positions the company for potentially stronger performance in 2025. Despite the temporary reduction in starts and inventory, UHG's strategic approach to inventory management and product innovation is expected to improve cash flow, reduce risk exposure, and capitalize on strong underlying demand in its markets. Investors should monitor the company's near-term margins and progress in executing its strategic initiatives.