In 2008, as the housing market was collapsing, Meritage Homes faced two major issues.
One, like a lot of other builders at the time, it was having trouble moving homes. While the Scottsdale, Ariz.–based public builder had a good feel for its new-home competition, resales were another story.
"We had a lot of communities that we were really struggling to sell houses with," says Meritage CEO Steve Hilton. The new-home builders' prices "were the same as ours, and we were still not selling as many houses. We found out quickly that it's not about other new home comps. It's about where our price is relative to the resale market. We found out we didn't have good information on resale prices."
The other problem wasn't quite as dire as a lack of sales. At a time when most builders were jettisoning land and cutting overhead just to stay afloat, Meritage wanted dirt—not a bad position to be in. But it needed a targeted approach as it amassed land positions. "When we started buying land again coming out of the downturn, we needed to really make sure we bought land at the right places for the right price," Hilton says.
Though Meritage's dirt and sales dilemmas had vastly different origins, Hilton found the solution for both in one place—data. The company lured Centex veteran Phillippe Lord from Acacia Capital, which sold lots to builders, to the lead a new venture—using numbers to better target and guide land buying, product decisions, and pricing information.
"We're happy we did it, and I don't think we could live today without it," Hilton says about the data program. "It's where the world is heading in home building, just like it is in sports and many professions. Housing analytics, we believe, are essential to making the right decisions."
As the data program has grown, so has Meritage. The No. 9 builder on our latest BUILDER 100 list, it closed 5,862 homes in 2014—11.43% more homes than 2013—and saw a 19.45% increase in gross revenue.
But in the fluid world of home building and research, Meritage must constantly evolve because the land market is always changing and the types of data available and ways you can use it won't stay the same.
An Evolution in Data
Not only did the Meritage's advanced metrics help propel the company, it also help bump Lord up to regional president of Meritage's western division. And, earlier this year, he moved up to COO. The company hired Wayne Yamano, senior vice president and director of research at John Burns Real Estate Consulting, as a replacement in the research group. With an undergraduate degree in microbiology from UCLA and a MBA from USC, there was no doubt Yamano had the mental bandwidth for Meritage's advanced math.
"He knew the program already because he was involved John Burns' version of the program," Hilton says. "He knew it and he's damn smart. He knows how to extract and interpret data."
With all of the data sources out there, extraction and interpretation are probably more important than the numbers themselves.
"We buy a lot of data," Yamano says. "I don't think the secret sauce is in the data. Really anyone can buy data. The challenge is how you balance that with other data, which either my team collects or you get from your land acquisition and division folks."
Even in this environment where everyone possesses some types of numbers, analyst Alex Barron with the Housing Research Center says Meritage does go about things differently. "I think they more go more in depth into both the existing home sales, as well as the new-home competition to figure out how to position themselves in the market," he says.