How Will New Homes Change after "The Bottom"?

Hanley Wood's website, HousingCrisis.com devoted an article to discussing how homebuilders were re-imagining the "value" of their product. It is obvious that most homebuilders are looking for a solution. Some are looking to go "back to basics" while others are looking at this crisis as an opportunity for a real "transformation". I believe that there is a business model that projects well into our unsure future. It is likely that we have not yet perfected that model however.

I had the opportunity to spend a couple of days in Omaha last week to meet with Hearthstone Homes, one of the builders mentioned in the article. They are a real success story in the midst of this housing collapse. I get a sense that they may very well be on the path to leading the way toward that "transformation". Keep your eyes on them!

Home builders rework how they offer value

Home building’s leading business executives have a message for the public. The message is this: We’ll meet you there, where you can feel confident in a new-home purchase right now.

Several dozen of those executives met this week in Chicago for the annual Builder 100 conference. If any of them had spent time in the fetal position during any part of the last two-plus years, you would never have been able to tell. A resilient bunch, although one whose ranks are sorely diminished and still shrinking.

For those who were at the conference, a shining, if symbolic, moment of resilience was Pulte chief executive officer Richard Dugas braving a public appearance as Builder’s Executive of the Year despite an angry crowd of labor union protestors clamoring on the street outside the conference venue. Protesters brought their signature oversized inflatable pig and stood it among them as they picketed the hotel on East Superior Street. Dugas stood tall and talked of the determination of his company’s people to weather the balance of the economic storm and emerge an even stronger firm.

For those who were unable to attend the conference, it should be noted the mood was realistic; the consensus was that traffic and sales are up; there’s lots more work to do; and bigger opportunities are beginning to reveal themselves.

For two solid days, they talked about their message to the public: “We’ll meet you a good part of the way there.” They talked about what they want–mostly good headlines–and what they’re going to do about it next, give new meaning to the word “value.”
Value has been the missing link in the real economy and the housing economy. Loan-to-value. Cost value. Time value. Never missing a beat, however, has been the value of people. People, home building’s thought and practice leaders refrained over and over, are where you get value. It’s the one and only way to get home builders’ house offerings a good part of the way there for the public to feel confident about buying right now.

Builder 100 executives talked over and over about people, about ones they’ve lost, and ones they have fought to keep. People are where smarter processes and better margins and more persuasive selling occur. People are positive cash flow versus the incessant erosion of hard assets like land and invested capital. People are the only difference between sheer price reductions and value.

Every home builder there was talking about offering value. It’s practically a euphemism for offering lower cost products to home buyers who are stuck in a Catch-22 credit environment. The industry’s most dramatic gesture to date–the Pulte acquisition of Centex–is strategically a play for value. Pulte’s acknowledging, in part, that it needs a value brand in its portfolio, not just for now, but especially now as a ramp to recovery.

Pulte’s not alone. We’re seeing practically every company, from KB Home, to Meritage, to D.R. Horton, to Jagoe Homes, put greater emphasis on value. This means killing frills, figuring out smarter ways to buy materials and manufactured goods to put in the homes, and building faster yet with higher quality to cut down both on trades time and warranty issues.

The third key part of the new value proposition home building executives were focused on at Builder 100 is green. Clearly though, green as a business issue versus green as an altruistic motivation. More and more home builders, most of the bigger enterprises and an increasing number of regional and local companies including Artistic Homes in Albuquerque, and Hearthstone Homes of Omaha, are building energy efficiency beyond code into their homes.

There are a couple of reasons for this right now, and they’re related business objectives. One is the struggle to find any possible point of difference from competitors in their marketplace, and the other is to strike potential home buyers with a money-saving and emotional reason to buy, and get them to regard the “total cost of homeownership”–mortgage payments plus payments for utilities and other regular maintenance costs–as a new-home benefit. We learn at the Builder 100, of course, that the mortgage finance sector has apparently never heard of or been regardful of the “total cost of homeownership.” So when a buyer can get approved for a $200,000 home, but pays through the nose for utilities and other costs, the bank is unaware. But the same lender would scarcely approve that same buyer for a $250,000 loan for a new home that would save more than $50,000 in utility and maintenance costs during the term of the loan.

People, value, and green. These are the issues we’ll continue to focus on in the months ahead. Cracking the code of value–which home builders have begun to do with their new entry-level and other segment offerings–is how home builders can be confident in their simple message to the public: We’ll meet you there.

To read this article and more, please be sure to visit http://www.HousingCrisis.com to view Hanley Wood's website on the "Construction Pulse".