Just when it seems as though the housing downturn has infiltrated every nook and cranny of the housing market, success stories emerge. We continue to find instances where builders beat the market, quickly moving attractively priced homes that exceed buyer expectations.
Buyers camped out all night last fall to get a shot at homes in the first phase of G.L. Homes' Greystone community in South Florida. The 134 homes, starting at $311,900, sold out in just five hours. G.L. worked overtime to reduce its expenses and streamline its operations so that it could provide a value proposition too compelling to ignore.
Thanks to cathedral ceilings, sun-rooms, and strong exterior detailing, sales at The Villas at Rivertown in Grand Rapids, Mich., doubled the rate of the competition. Covenant Developments gambled by eliminating basements from its moderately priced condos to cut costs and move the savings into distinctive architecture. It paid off. (See “Single Floors Sell,” page 65.)
Or consider the case of Glass House (see “Urban Living,” January, page 59), a high-rise condominium in Denver that sold out all 386 units in six months last year. The tower—with floor-to-ceiling windows offering mountain views—tapped into pent-up demand among downtown renters, mostly empty-nesters and first-time buyers paying steep rents. Prices ranged from under $300,000 for a studio to penthouses that sold for as much as $3 million.
FALLING TIDE DOESN'T SINK ALL BOATS Clear lessons emerge as we sort through the wreckage and identify survivors. First, closer-in projects are selling better. In general, builders faring worst do move-up homes in isolated communities on the suburban fringe in markets that witnessed 15 percent to 20 percent annual price appreciation for five years. At the other extreme, builders doing infill work in markets with good job growth report strong demand.
Second, buyers are out there if you can achieve a low enough price point. The challenge is to reduce land and direct construction costs. In the markets poised for a comeback—Sacramento, Calif., Las Vegas, and Washington—builders are diligently working to open new communities at price points low enough to compete with existing homes. In Las Vegas, new homes often sell for less than comparable existing homes now, thanks to aggressive discounting.
Third, unique design wins every time. Faced with a choice between two comparatively equal values, buyers always will choose the better-looking home. This is one of the reasons one-of-a-kind in-town projects have been successful. The need to build attractive elevations and provide compelling floor plans is especially acute today given the competition from existing homes.
Fourth, demographics shape demand. Every company needs a plan for targeting empty-nesters, whether that's through active adult, vacation homes, or in-town condominiums. They represent the biggest growth market of the next five years. We'll also witness growth in single buyers, some with children, and minority and immigrant households looking for family homes.
Many of these non-traditional buyers can't find the floor plans that they want in an existing home.
That leads to a final lesson—new homes compete with existing homes, now and until the end of time.
The biggest problem in the market today is that too many homes are for sale. What you build needs to stand head and shoulders above the crowd.
Learn more about markets featured in this article: Denver, CO.