2010 State of The Industry Survey (PDF download)

2010 State of the Industry Survey - Three Year Trends (PDF download)

For America’s home builders, 2009 arrived with a whimper. Raw Census numbers tell the story: January 2009’s total sales of new homes, at 24,000, were the lowest since December 1974, and only slightly above December 1966’s total of 23,000. Bear in mind that the U.S. population has grown by 100 million since 1970, and it’s clear that the winter of 2008–2009 was the coldest and darkest season our country’s home builders have endured in close to a century.

So it’s not surprising that Builder’s “State of the Industry” survey 2010, conducted in October, reveals an industry of drastically downsized companies struggling to survive the business crunch of a lifetime. But what may surprise some are the glimmers of hope that our survey shows. While most companies were still posting declining sales numbers, 16 percent of respondents say closings were up in 2009 (compared to 10 percent in 2008). And many are finding strategies to sustain their companies through these tough times—and get them ready for better times ahead.

It’s tempting to read too much into our data. Our sample, after all, is not scientific —it’s made up of readers who chose to respond. So it’s hard to be sure if there’s a real trend when results vary from year to year. But even given that caveat, some of this past year’s results are strong enough to serve as serious indicators of change. And one key finding does jump out: 2009’s respondents are far more optimistic than 2008’s group.

Asked simply, “How would you rate current market conditions?” 2008’s respondents were strongly negative: 74 percent said conditions were deteriorating; 20 percent said they were stable; and just 6 percent said things were improving. One year later, the numbers were sharply different: 42 percent saw conditions deteriorating; 39 percent saw conditions as stable; and 19 percent said conditions were actually improving (see charts, next page).

But when will the market turn around? On that topic, builders take a dimmer view. In 2007’s survey, 12 percent of builders thought the downturn had already hit bottom. Another 11 percent expected things to bottom out in 2007, while 55 percent thought the bottom would be reached in 2008. By fall of 2008, a new realization had set in: 63 percent thought the market would bottom out in either the first half or the second half of 2009. Now, most are predicting an even slower comeback: In the latest survey, just 42 percent of builders expected to see housing begin to recover in early or late 2010, while 37 percent looked for the recovery to lag until 2011, 2012, or even later (see charts, page 142).

A Shrunken Industry

In 2009’s brutal economy, nearly all companies continued to cut back—as shown in production, revenue, and workforce numbers. In 2007, 53 percent of the sample reported starting between one and nine homes; by 2009, that segment had swelled to 74 percent. Large firms were fewer in number: In 2007, 7 percent of respondents started more than 1,000 houses a year, but by 2009, that segment had shrunk to just 2 percent. Builders starting more than 5,000 houses—who represented 3 percent of the 2007 sample—were absent from the 2009 sample. (To download the complete breakdown of all of this year’s survey numbers, visit www.builderonline.com/business/state-of-the-industry.)

In dollar terms, builders were taking smaller slices of a shrinking pie. In 2007, just 20 percent of businesses in the sample had a volume of less than $1 million; by 2009, that category reached 39 percent. High rollers, meanwhile, have taken a hit: Companies earning from $100 million to more than a billion annually, who made up 15 percent of the sample in 2007, accounted for just 5 percent by 2009.

Employment numbers followed suit. In 2007, firms with between one and 10 people made up 61 percent of the responses; by 2009, that segment was 80 percent of the sample. Every other segment showed declines: The biggest firms (employing more than 100 workers) dwindled from 15 percent of the sample to just 5 percent. Layoffs, correspondingly, mounted. While 12 percent of companies reported laying off 50 percent or more of their staff in 2007, 23 percent did so in 2008, and 32 percent did so in 2009.

Receding Hopes: As the recession lingers, builders postpone their expectations for recovery--with many now doubting any rebound any earlier than 2011.
Receding Hopes: As the recession lingers, builders postpone their expectations for recovery--with many now doubting any rebound any earlier than 2011.

Closing numbers continued to suffer in 2009—but the carnage may have begun to abate. In 2008, 60 percent of builders reported a decline in closings, while just 10 percent saw an increase. This year, 44 percent reported a decrease while 16 percent reported an increase. Losers still outnumbered gainers—but now by only 3 to 1.

Square footage, meanwhile, continues to drop. In 2007, 29 percent of builders said they had started to build smaller homes. In 2008, 45 percent of respondents said they were doing so; and by 2009, a hefty 56 percent of those surveyed had made the switch to a smaller footprint.

Strategies for Survival

Responses to the survey’s open-ended questions offer some insight into survival strategies. For the companies whose closings are constant or declining, those comments indicated grim determination—or even desperation. A high-end architect/builder from the Atlanta area commented, “I haven’t had work for three years in any price range.” A small Colorado custom and spec builder echoed that remark: “I have no business as of now ... . People can buy foreclosed homes for much less than it costs to build a new one.”

Companies with diversified businesses were emphasizing areas other than building. For one Texas firm, that meant commercial property management. The owner said he was focusing on “conserving cash,” saying, “We have simply moved to ‘neutral’ on sales, have rented out our last homes, and are concentrating on maintenance of our commercial-owned properties.”

But businesses limited to home construction were finding it tough to conserve their cash. One small Georgia builder said, “We were building large homes, but are now building townhomes and smaller and energy-saving homes. We are in survival mode now; losing a lot of life savings to keep our three homes and 12 lots.”

As in earlier years, some companies report a shift to remodeling. “Working 80 hours/week on remodeling jobs and meeting with any and all customers any time/any day,” reported one New York state builder: “Total survival strategy.” “New builds at a standstill,” reported a small Michigan contractor. “Design build remodels are the only jobs out there.” Even remodeling offered slim pickings, he lamented: “Everyone seems to be waiting—for what? Consumer confidence is at rock bottom.”