Meritage Homes sees merit in building houses in high-growth areas of the western and southern US. The company typically constructs single-family homes targeted at first- and second-time homebuyers, as well as the luxury and older adult market. Home prices range from about $103,000 to $673,000 and average about $263,000. Meritage Homes controls roughly 15,000 lots and most often builds in more than 150 communities in Arizona, California, Colorado, Florida, North Carolina, and Texas. Homes are sold under the Meritage Homes brand, as well as Monterey Homes (in Arizona and Texas). The company, which was founded in 1985, also develops active-adult communities.
Some 114 communities in Arizona, Texas, and Colorado account for more than 70% of the homebuilder's sales. California and Nevada (where the company is winding down operations) account for about 15% of sales, while in the East, North Carolina and Florida contribute more than 10%.
The housing crisis has taken a steep toll on the homebuilder's sales, which have tumbled 75% over the past five years. In 2011 sales fell nearly 9% vs. 2010, and the company was once again unprofitable. (Meritage Homes did manage to squeeze out a profit in 2010, its only year in the black since 2006.) The drop in 2011 sales was due to a 432-unit reduction in units closed that was partially offset by a $9,200 increase in average closing price. Also, the federal homebuyer tax credit program, which boosted sales in 2010, expired making for a difficult annual comparison. Despite the protracted downturn in housing, Meritage Homes claims to see indications that demand for new homes is stabilizing in some of its markets.
One of the top homebuilders in the US, Meritage Homes has largely focused on the southern and western regions. However, the housing downturn, which has been especially severe in California and Florida, has changed Meritage's game plan. The homebuilder is getting more choosey about where it builds, focusing on high-growth areas with low foreclosure rates. It entered Raleigh, North Carolina in 2011 and is exiting Nevada.
To combat slowing home sales, Meritage Homes limited construction to reduce its costs and meet lower demand. Early in the recession the company reduced its number of lots as part of its strategy to decrease its position in non-key, underperforming markets. However, Meritage is now increasing its lot supply and looking for well-priced deals on land in growing markets.
Meritage also increased its sales and marketing efforts to sell its backlog of existing homes and has added a line of lower-cost homes under the Simply Smart brand aimed at first-time buyers. Going forward, Meritage plans to continue offering new homes at lower price points in order to attract first-time buyers. It's also building more energy efficient homes to lure buyers. In 2011 Meritage unveiled its first "Net-Zero" home, which produces as much energy as it consumes. Still, Meritage faces intense competition from other builders and from the excess supply of re-sale and foreclosure homes.
Investment firm FMR LLC owns 14% of the company's shares. The Bank of New York Mellon Corp. owns about 10%. – less
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