“When the Going Gets Tough, the Tough Get Going” is a saying attributed to Joan W. Donaldson as well as a popular song originally recorded by Billy Ocean and used as the theme song for the film, The Jewel of the Nile. I believe that this is now truer than ever for everyone in the homebuilding industry.
Most of the housing markets across the country have reached bottom and are now ready to begin a slow but steady recovery. Household formations are still lagging due to the lack of meaningful employment growth but population growth is continuing at strong levels and will return our industry to health and over 1,500,000 annual housing starts nationally by the end of the decade.
Things are certainly still tough out there in many places and it may still be as long as three to four years before we see the meaningful signs of a housing recovery in our own markets that will start to “naturally” return our levels of new home sales and our incomes to the levels that we enjoyed just a few years ago.
Last week a salesperson at a development that I was shopping complained that traffic had slowed considerably since the tax credit ended and she was not selling any homes. A prospective homebuilder client with whom I have been in contact for several years told me this week that the market was slow and he had decided to “just wait it out”. And a developer client informed me yesterday that he was not “giving away” his homesites and would just hold on the best that he could until the market returns.
Inaction is simply not a solution; it is a self-fulfilling prophesy for failure.
If traffic is slow then it is up to the salespeople to create their own additional traffic. In 1974 when the market slowed to a trickle in south Florida, I had my sales team cold calling prospects from the phone book. It was not fun and we probably annoyed many people but we sold 24 additional homes that year and survived until the market returned. There are far more tools available now to new home sales professionals to create interest and traffic but they have to be used intelligently, professionally and aggressively.
Sales people also have to relearn how to sell. I was the sales manager for a homebuilding company in the late 1970s when mortgage interest rates averaged well over 12%. It wasn’t easy but we sold homes by continuously training our sales staff and stressing the true benefits of home ownership. In 1992 when consumer confidence fell to 45% and interest rates hovered near 8% we managed to produce over 1,000,000 new homes in this country. Certainly the market is tough now with the troubled economy, high unemployment, continuing high numbers of foreclosures and short sales and low consumer confidence but with interest rates under 5% and prices lower than they have been in years, our sales teams have something to sell and they can do so with the assistance of ongoing professional training and coaching.
Homebuilders need to liquidate their old, stale inventory, be it homes or homesites. They should have taken that action three years ago when it was obvious that the market was staring to turn but for those that procrastinated, it still needs to be done. Old homes and homesites are not like fine wine or cheese, they do not improve with age; rather they get stale, grow mold and tend to stink. If builders did not follow my advice to create an asset preservation program first given in my program at IBS in 2006 and repeated two years later in NAHB’s audio seminar, then there is less leverage available but deals still need to be negotiated with the banks to liquidate inventory, the faster the better.
New homes need to be designed for the new and viable target markets, incorporating the features and value that the market now demands. The “old” stuff is no longer salable. New homesites need to be acquired in correct locations at appropriate cost to deliver homes to the market at the prices they can afford. Several of the national homebuilders have gone on buying sprees picking up REO and developer remnants and selling quite a few new homes on this inexpensive land but homesite bargains still exist and need to be secured. If capital is stained, look to create joint ventures with the land owners or arrange for private financing within the local community.
The same holds true for developers. When homes are not being built within the community the development quickly becomes stale, the market moves on and momentum is lost which may never be regained. Developers need to seek out qualified homebuilders in their markets or go outside thir local markets and find them, then provide the necessary incentives (not necessarily price discounts) to generate homebulding.
Even the suppliers and industry consulting professionals need to stop merely waiting for the business to walk in the door and, instead, go out, find it and sell it. Business has slowed for me too and I find myself with extra time on my hands so I researched new opportunities, sent out letters of introduction across the country and will be making the “cold calls” myself over the next few weeks.
If Beethoven can compose Ode To Joy, the final movement of his Ninth Symphony, arguably one of the greatest pieces of music ever written, in 1824 when he was stone deaf, is there any limit to what any of us can accomplish in the homebuilding industry if we simply put our minds and efforts into it? I don’t think so but that’s just my opinion.
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