I am certain that most of us are familiar with Horton Hears a Who!, a 1954 children’s book by Dr. Seuss (one of my favorites which was made into an award nominated 2008 animated film). The book tells the story of Horton the Elephant who, “on the fifteenth of May in the Jungle of Nool”, hears a small speck of dust talking to him. It turns out the speck of dust is actually a tiny planet, home to the city of ‘‘Who-ville’’, populated by microscopic-sized inhabitants known as the “Whos”.
Although Horton cannot see the Whos, he can hear them and the Whos ask Horton to protect them from harm. Horton agrees to the request proclaiming throughout the book that ‘‘even though you can’t see or hear them at all, a person’s a person, no matter how small’’. In doing so he is ridiculed by the other animals in the jungle and finally imprisoned for believing in something that they are unable to see or hear.
The Whos finally make themselves heard in the jungle by ensuring that all do their part and it is the final effort by a ‘‘very small shirker named JoJo’’ whose addition to the effort creates enough volume for the other animals in the jungle to hear the sound.
Now I do not believe that my hearing is especially acute. In fact, if you were to ask my wife, she would probably suggest that I am at least partially deaf, especially when she is speaking and asking me to do something for her. Yet I heard the “Whos” loud and clear.
As early as 2004, well before the sub-prime fiasco and the economic meltdown, it was apparent that new home construction was outbuilding demand in most markets. Several of us ”heard” the market’s shouts loud and clear and tried to pass that information on to the builders and developers. The ratios of “permits to employment growth” and “permits to population growth” were simply out of whack based upon historical numbers and provided clear indications that the demand in most primary housing markets was insufficient to support continued production levels.
I had the opportunity to speak on a seminar at the 2004 International Builders Show with two of good friends and acknowledged experts in the housing field, Bonnie Alfriend and Chuck Graham, and we all strongly made the same points about the obvious (to us) near term market contraction. But the builders and developers, abetted by the banks and wall street firms with limitless funding, continued to chase the short term profits and refused to listen to us and to other naysayers; they believed only in what they could hear and see – they were selling homes and making record profits. So they paid higher and higher prices for parcels of land in further-out locations and then, using their “5 time land price multiplier”, brought even more overpriced housing to the market in marginal locations.
The result in all these cases was and continues to be lack of success and that lack of success was and is needless. If we do not listen to the market, which are our “Whos”, no matter how small that voice may be initially, we are doomed to failure.
Now the voice of the “Whos” became much louder in 2007 and 2008 and it seemed that the volume reached a level that was impossible to ignore. Yet as I continue to visit housing markets and look at the new home offerings, it would appear that the builders and developers still cannot hear or choose to ignore that voice.
The first time buyers, that section of the market that today is not only the largest segment but also is unencumbered with an existing home that needs to be sold, is calling for smaller, smarter homes. Much of the market is calling for “green” building and that portion of the market continues to grow. And all of the market is screaming for something different, something new, something better, something that they do not have now and that excites them and stimulates a desire to purchase.
In all fairness, several builders, including several of my clients, have taken the time and spent the money to create a “Unique Selling Proposition”, be it through superior home design or community design, included features or efficiencies that produce better value, anything that differentiates them from the competition and they have thereby removed themselves from the low price battle and earned more than their fair share of sales, even in these challenging times.
But the majority of the others have not and they continue to compete solely on the basis of price which is very difficult in the face of foreclosures, short sales and all of the other distressed sales out there. Now the “price position” is certainly a viable strategy in any market but it only works (turns a profit) if the builder has secured advantageously price land, has designed a cost efficient product, and has worked aggressively with the entire team to minimize hard cost. For the others, their only solution is to discount their homes and that erodes, if not eliminates, profit.
So my question for the day is: “When do you think that most builders and developers will hear the “Whos”?
For further information on our company and services please visit our web site – www.levitanassociates.net