Funny how second-hand doesn't seem so bad when times get tight. With land prices in the stratosphere, consumer confidence waning, and mortgage interest rates creeping up, would-be home buyers who previously held fast to the “new or die” mantra may be tempted to give the resale market a second look in the year ahead. Many will simply assume that they can't afford to buy new.
Some indicators suggest that this shift is already in motion. While new-home sales are losing steam fast and inventories continue to pile up, sales of existing homes rebounded from a five-month slump in February, posting a 5.3 percent gain—the biggest increase in two years, according to the National Association of Realtors (NAR). At that time, the NAR estimated a 5.3 months' supply of existing homes on the market at the current sales pace, versus a slightly higher 6.3 months' backlog of new homes.
The irony, particularly for boutique builders who repeatedly pull permits in the same locales, is that resale competition isn't always in the form of antiquated housing stock. “The bulk of resales happen after three to seven years,” notes Al Trellis, president of Home Builders Network, a Maryland-based consultancy specializing in strategies for small builders. “When you're selling against houses that are two to four years old, you're often selling against your own stuff.”
Whether your main competition is that historic neighborhood just a few minutes from downtown or the master planned community you yourself built five years ago, there's one surefire way to get a leg up on yesterday's houses: Keep your sights set on the horizon line of tomorrow.
ROUND 1 Mix it up. Even if your biggest competitor is the guy in the mirror, that's not license to hang back and relax, Trellis says. A builder with an inventory of, say, 20 plans should always be changing the menu. “There is a danger in holding on to the plans that sell the best, and that danger is holding on too long,” he warns. “No one wants to throw away a winner, but even a winner occasionally needs a new wardrobe and a week at the spa.”
The name of the game is to keep changing the look and feel of your product, Trellis says. “Introduce new elevations, retire certain floor plans, and rename some of your floor plans. If I sell the Breyerwood plan for $299,999 one year and then start selling it for $399,999 a year or two later, people will remember.”
Even with a great plan, rejuvenation doesn't hurt. “The world is full of suboptimizations,” he adds. “If you sell 25 a year, how do you know you can't sell 35 a year with some minor tweaks?”
The opportunities for improvement are often obvious, particularly when it comes to plans that have endured the gantlet of a phase one release. “Our revisions are usually driven by the fact that we learned something the first time around and we want to address it,” says Matthew Cody, president of Cachet Homes in Scottsdale, Ariz. Such was the case with a six-plex condo product the builder first introduced at McDowell Mountain Ranch, a desert community outside Scottsdale.
In the first iteration, a third of the homes had one-car garages, which didn't sell as quickly as those with two-car garages. “When we went to do the same product [in another community] we switched to all four-plexes with two-car garages, changed the garage orientation, and added some stone to the exteriors,” he says. “In this case, the floor plans didn't really change. It's the curb appeal we had to doctor up with how we handled the garages. We don't like to do the same product line, unedited, more than twice.”
ROUND 2 Divide and conquer. When it comes to competing against older houses, tiny rooms and inadequate storage are easy to one-up. For decades, the standard new-construction response to these shortcomings was to super-size the offerings and dispense with just about any wall that wasn't structural. The newer thinking: Less is more if you reconfigure square footage with a purpose.
Learn more about markets featured in this article: Durham, NC.