The story of how people camped out for the chance to buy within one of Meritage Home's communities in 2004 will transform into the story of how big builders survived in 2006 and 2007, said company CEO and Big Builder '07 chairman Steve Hilton at the conference's general power session entitled "Rally Time: Breakthrough Leadership," which took place Tuesday, Nov. 27, 2007.
After expressing his hope that attendees would use Big Builder '07 as "an opportunity to renew our competitive spirit," Hilton identified the importance of finding creative ways to improve a company's value proposition as well as the need to open one's mind to new ideas in order to overcome the present adversity of the housing market downturn.
Holiday Builders president and CEO Kim Shelpman said she "jumped out of the frying pan and off the cliff" when she left the mortgage industry to start a career in home building. She joined Holiday Builders, tasked with turning around its operations, which Shelpman said "lost focus on training during the boom." In order to repair a rift in communication, Holiday has since implemented Holiday University, a program to mentor its future leaders.
Shelpman stressed the need for new sales and sales management programs to lead through the market cycle. "We didn't change with the times," she said.
In response to a question regarding public vs. private home builders, KB Home president and CEO Jeff Mezger said both share the same difficulties in any market: "We have different owners, but the owners still take a long-term view."
Mezger said the largest change his company has experienced was reinventing the scorecard?a necessity, as roughly 80% of KB's management teams had never before experienced a downturn. Mezger said KB's focus has shifted from profit and growth to balance sheet and cash flow management, as well as taking care of the team.
Viewing the last two years as a great opportunity to retrench, Meritage has moved its focus to its product, its people, and better land development, according to Hilton. "[We're spending] more money on training, more energy on product and not 'designing away' our profit," he said, going on to stress that taking the time to build the company culture in the bad times will help Meritage emerge as a stronger company on the other side.
"In fat times, you get fat," said Mezger, who pointed out that a smaller production scale calls for a smaller staff. In order to maintain employee satisfaction, Mezger recommended reinforcement and rewards based on a home builder's current scorecard. "It has become a rallying cry [at KB]," he said.
The mortgage industry was long overdue for a correction, according to Shelpman?a statement many would be inclined to agree. However, the only immediate problem she identified as a result of the credit crunch was the increased pressure of affordability. Overall, though, Holiday has not seen cancellations due to lack of financing, Shelpman said.
Pointing to California as the main anomaly, Mezger said that over 90% of KB's projects are at FHA and VA price limits nationwide. However, as "liar loans" reset and lead to foreclosures, pressure will be felt due to additional inventory on the market, he said.
While Shelpman acknowledged that, "Unfortunately, yes, there are more land impairments coming," Hilton voiced his opinion that it "could be a good thing in the long run." Explaining that slashing prices does not equate to sales generation, he pointed at the need for pricing normalization across several markets.
As for the bottom of the downturn, Shelpman stated her opinion that it "is very near" in such markets as Florida, Texas, Alabama, and Mississippi?predicting that the industry is within 6-12 months of "knowing we've hit the bottom."
Mezger said that, throughout most of KB's market, the new-home median sales price is below the median resale price. While KB has approximately a 6-month supply of inventory on its books, the resale market, which Mezger pointed to as his company's biggest competitor, stands at a 28-month supply. When that inventory trends back to a 6-month supply and prices begin stabilizing, that will signal the market rebound, according to Mezger.
Hilton, meanwhile, said he expects seller fatigue in the resale market: Once they realize they can't get the price they were hoping for when they made the decision to sell, they'll take those houses off the market. On a positive note, Hilton pointed to the long-term health of the Vegas market, which expects a growth of 40,000 new jobs in the next 18-24 months: "Where are those people gonna live?"