No analyst expected the 2011 spring selling season to outshine 2010’s tax credit-fueled spring, but still, in January there was hope. The general economy was improving—by bits, but still improving. Perhaps this year it would be better.
By the middle of May, as the last of the public builders reported their quarter numbers, it was clear that it wasn’t a better spring. Analysts were describing the results as “tepid at best,” “fallen flat,” “lackluster.”
M/I Homes CEO Robert Schottenstein, in reporting wider losses for the quarter compared with 2010, gave it a B-, calling it “clearly not great but far from poor.”
UBS Building and Building Products analyst David I. Goldberg’s assessment was similar. “Disappointing relative to expectations, but not terrible.”
With hopes of an imminent recovery dashed, builders have begun to further contract their operations, announcing reductions in staff, divisions, and spending, trimming themselves down to survive in an environment that isn’t looking to get much better soon.
Beazer Homes USA—which has survived Job-like pestilences, including federal investigations and fines, in addition to the widespread problem of disappearing business—announced a staff reduction of 130 to save $20 million this year. And those reductions clearly bite into the bone and flesh of Beazer, cutting the company’s purchasing, marketing, IT, and product development and design departments.
"We're going to stand still for the moment," CEO Ian McCarthy said of the effect of the cuts on certain programs during the earnings conference call.
PulteGroup, too, made more moves to consolidate operations on top of ones it made at the end of 2010 when it merged six national divisions down to four. Recently it boiled the four down to three by combining its western and central operating areas. The company has not said how that merger will impact head count.
Ryland Homes dialed back land acquisition in a move that cuts costs but also slows down the company’s efforts to build its community count with homes that will bring better margins. A move into the Raleigh market is its only expansion plan at the moment.
“It feels like the overall macro market is better, but that doesn’t’ seem to be translating to housing,” said UBS’s Goldberg.
Goldberg thinks the industry is being impeded by consumer confidence and mortgage availability, which he describes as a one-two punch. He predicts both of those problems will be solved with time. As the economy improves, the jobs market will improve. And as the job market improves, people’s credit scores will rise, enabling more buyers to qualify for mortgages. At the same time, as the mortgages that have been written under the new tougher lending standards begin to perform better than those underwritten during the heady years, investors will return to the mortgage market, making credit more easily available.
How long will that take?
“I don’t think there is any reason to think 2011 is going to be great,” said Goldberg.
Don’t expect 2012 to be good either, D.R. Horton CEO Don Tomnitz told analysts during that company’s conference call.
“As we look forward over the next two to three years, we don’t expect a significant improvement in demand, because clearly one of the things that drives demand in our business [more] than most is job growth, and we’re not seeing the kind of job growth that I think will increase our sales dramatically,” Tomnitz said.
Teresa Burney is a senior editor for Builder magazine.