I admit that I greatly enjoyed the 2009 movie “Up” and I must assume that I am not alone as it won the Golden Globe award for best animated film. My favorite scene in the film is centered on Dug, a Golden Retriever who can talk. He is constantly being distracted by basic canine instincts and, in the middle of a conversation, will often freeze, turn his head and point and say “squirrel”.
As some of my followers may remember from earlier blogs, my wife and I are responsible for three senior women. One of them is my mother-in-law, Doris, who, at 90 years of age, is experiencing some cognitive problems. I must admit that one of her recent patterns of activity is humorous to me, not so to my wife, as Doris will easily become distracted, often stopping dead in her tracks while walking into or out of any building to stare at a sign which she seems not to understand. My response is to quietly turn to my wife and say “squirrel!” while my wife’s counter response is to punch me in the arm and try to get her mother moving again.
It seems to me that the whole world is becomingly increasingly distracted from the task at hand and that this is perhaps most evident in the homebuilding industry.
Last Friday’s CNBC article by Diana Olick titled “Home Builders Hedge Their Bets on Housing Recovery” clearly points out this distraction. Several of the nation’s large public home builders reported their quarterly earnings this past week with most of them showing a higher than anticipated loss. While that loss was not surprising to those of us who are “on the ground” and watching the larger homebuilders who do not appear to have made the substantive changes necessary to adapt to the new realities of the marketplace, what does seem unusual is the statements issued by the leaders of several of these companies.
Donald Horton’s (D.H. Horton) statement: “Market conditions in the homebuilding industry are still challenging, with high foreclosures, significant existing home inventory, high unemployment, tight mortgage lending standards and weak consumer confidence. However, housing affordability remains near record highs, interest rates are favorable and new home inventory is still very low,” “We continue to focus on providing affordable homes for the first-time buyer while having product available for move-up buyers, further adjusting our cost structure relative to our current sales pace.”
CNBC suggested that this would translate to: “We’re still in the dumps, but we’re lowering prices, so come on and buy.”
Richard Duga’s (Pulte) statement: “Over the near term, we expect the industry will continue to face low levels of demand and that overall operating conditions will remain highly competitive… but we expect a return to profitability in the back half of the year.”
CNBC translation: “Still bad, but it has to get better, right?”
Steven Hilton’s (Meritage) statement: “The market has obviously softened since the federal home buyer tax credit expired in April last year, as reflected in total U.S. home sales as well as our own sales and closings. As a result, we have offered larger incentives in some of our communities, resulting in lower margins that offset the improvements we are achieving in our new higher-margin communities…the spring selling season for the last few months is off to a tepid start, and we have not produced sales at the pace we would have hoped this far into the 2011 selling season. We believe the housing market in general is still bouncing along the bottom, with pockets of strength in certain of our markets.”
CNBC translation: “We’re lowering prices, throwing in upgrades, and it’s not really working.”
Instead of appearing to accept defeat and rely solely on hope, where is the actual strategy and intelligent plan of action by any of these homebuilding leaders that recognizes demand for new homes in 2011 will perhaps reach only 350,000 to 375,000 total units, rise to only 450,000 to 500,000 units in 2012 before beginning a steadily increasing path to recovery over the next few years where we will return to 1,000,000+ housing starts. And where is the strategy to make money under all of those conditions?
Where is the announcement of temporary consolidation of communities and even divisions to eliminate needless overhead, stop cannibalization of markets and generate sufficient sales per community to support professional sales operations and thereby maximize sales?
Where are the plans for new housing products designed to appeal to and satisfy the needs of the new buyer segments and able to compete and sell in the new realities of the marketplace? Having written down land holdings by over one billion dollars, where is the new home pricing and value structure essential to stimulate a desire to purchase a new home today and into the future?
I just returned from a week examining the market in two smaller cities in the mid-Atlantic. There are no national builders in these markets but several of the regional and local builders there have made substantive, positive changes in their operations in the past year. Two of the smaller homebuilders have opened new developments. The largest builder in the market has introduced all new home designs at significantly lower prices and much more competitive values. These builders are all seeing increased sales and profits in 2011 and the larger merchant builders need to follow. Actually, they should be leading but that’s just my opinion.
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