Chris Coleman doesn't expect his housing market to get well anytime soon. As president of Northfield, Ill.–based The Dearborn-Buckingham Group, he assumes, only half facetiously, that his company “will not sell a single home” in 2008. But don't count Coleman among the industry's doomsayers, because he says Dearborn-Buckingham is positioning itself to get through this year “and be there at daybreak.” Like most builders, he knows the sun will come up again; it just won't be tomorrow.
“I don't think you can time the [housing] market any more than the stock market,” says Alan Lev, president and COO of Belgravia Group, a Chicago developer. All that companies like his can do right now is be smart and conservative and, as he adds, “don't do stupid things,” like overbuild or not pay enough attention to customers during the selling process.
Coleman and Lev were among the dozen executives who participated in three roundtables—with four builders each in Chicago; Costa Mesa, Calif.; and Washington—that BUILDER conducted in late October and early November to hear how builders across the country are responding to the persistent housing downturn. What those discussions revealed were builders who are grasping at straws. They're frustrated with customers who refuse to leap at purchasing opportunities in plain sight (“This is as good a time to buy as any in my career,” asserts John Laing Homes' CEO, Larry Webb); contemptuous of national builders for the calamitous aftermath of their excesses in land buying, construction, and marketing; and stymied by municipalities that block denser developments that could make homes more affordable. They're also flummoxed by the media's relentless hammering on the dismal market conditions that these builders' own plights betray. “We've tried everything, and we're not big enough to turn buyer psychology around, so now we're talking to land owners and banks for patience,” says Bob Mitchell, chairman and CEO of Rockville, Md.–based Mitchell & Best, who was dipping into his own pocket to pay key employees and keep them from walking away.
What worries builders is that these conditions could worsen. “This doesn't feel like the last dip to me,” says Terry Wardell, president of Wardell Builders, a custom builder in San Diego. In that same market, Hallmark Communities, which focuses on first-time and move-up buyers, stopped building homes two years ago. “We see this as being a five-year problem,” says Hallmark's president, Mike Hall.
John Laing's Webb foresees major fallout among builders from “one of the biggest capital crunches in our history.” Several builders also blame themselves for getting caught in the spokes of an industry that had spun “out of control,” throwing the balance between supply and demand out of whack. “We were a little too loose during the good times,” concedes Jack Zausa, president of Orland Park, Ill.–based Zausa Homes, which focuses on entry-level buyers. “The faucet kept flowing, and we didn't put our hand over it.”
Still, no one is admitting defeat yet. And given that one panelist, Jay Moss, is CEO of Mosaic Homes, which Irvine, Calif.–based giant developer SunCal Cos. launched only last October, it's obvious some companies see growth opportunities ahead. But chastened by the severity of the industry's recession, most of these builders are taking a fresh, and perhaps more realistic, look at what they are building, how it's built, and how it's sold. “It's a good time to go back and re-evaluate everything we're doing,” says Larry Burrows, president of Winchester Homes in Bethesda, Md.
GOING SMALLER None of these builders envisions a radical departure from how they've operated in the past. But they are making changes out of necessity. With few exceptions, builders have cut their workforces to the bone. South Barrington, Ill.–based Kennedy Group of Cos., for example, is down to 50 employees from a peak of 165, says founder and president Bill Kennedy. He and others are retraining their associates to wear multiple hats, which isn't necessarily a bad thing, says Zausa—whose company cut its staff in half—because “when everyone is cross-trained, they understand where the dollars come and go.”
Builders are taking a more inclusive approach in their house design and construction, as well. “If you want to cut costs, bring your controller in and work with him at the outset to design your homes,” says Kennedy. Winchester Homes is involving its subcontractors sooner and has managed to take a month out of its prestart process, says Burrows. Subs are playing a role in helping builders value engineer their homes for efficiency and cost savings. “We've never built homes faster,” says Steve Alloy, president of Reston, Va.–based Stanley Martin Cos., which is in the midst of a three-year initiative that includes simplifying and standardizing its house plans and retraining its subs. Last year, Stanley Martin lowered its construction time by 17 days, and its goal this year is to take another 30 days out of the process.
During the Washington roundtable, one of the running jokes was how living rooms have become an oxymoron. “Two hundred dollars per square foot for a room no one uses,” says Alloy, who believes that, as houses have gotten larger, design and functionality have been sacrificed. He's not alone. “I don't want to be putting cost into homes that no one appreciates,” says Webb. Hall adds that his company tries to stay away from the “Taj Mahals” that some cities in Southern California push builders into.
Despite what they see as municipal opposition to workforce housing, these builders are attempting to accommodate buyers by offering more economical options. Winchester Homes is building smaller (2,500- to 2,900-square-foot) detached homes. Dearborn-Buckingham recently introduced a series called Americana, whose price tag is less than $360,000, this builder's average. And Mid-Atlantic Builders in Rockville, Md., which specializes in high-end custom homes, this year will diversify into several counties with attached villas that target empty-nesters, as well as its first townhouses, both smaller than its typical homes. “If you can't cut square footage, you can't cut price,” says Roger Lebbin, Mid-Atlantic's president.