Contrary to earlier forecasts by lead-ing housing economists, the U.S. housing market has continued its downward slide through 2008. Facing an uncertain future, home builders have begun to implement some dramatic changes in how they build and sell homes in order to remain competitive and profitable. To help keep the industry abreast of the changing environment for home building, the NAHB Research Center conducted a study in early 2008 called, “Implications of the Soft Housing Market for Builders, Suppliers, and Manufacturers.”

The study reveals that builders are focusing on making business improvements, especially in their sales efforts. Builders have reduced home prices as much as they can and have become more creative in luring potential buyers into sales offices. For example, three-quarters of the builders surveyed have redesigned their homes to represent the best value among competitors, and about 70 percent are making their homes more energy efficient. The study reveals that the most popular home purchase incentives are free upgrades, and the most commonly offered upgrades are in the kitchen. The majority of builders are now paying closing costs and fees for new-home buyers, while just under half are providing assistance to buyers in selling their current homes. The study also reveals that home builders have become more flexible than ever, allowing buyers to specify modifications to home designs and material selections. The market downturn has also made now a great time for manufacturers to contact consumers directly to better understand their product needs.

The study also reveals that home trade-in programs, used by only about 15 percent of home builders surveyed, are rated as some of the most effective programs for luring buyers back into the market. This process is similar to trade-ins in the sale of new cars, where the builder purchases the old home as part of the sales contract for the new home.

Looking to future business improvements, about 30 percent of home builders surveyed stated they planned to adopt a green building program soon. Additionally, 18 percent said they would improve business performance monitoring; 17 percent said they planned to adopt a quality assurance program; and 16 percent said they would undergo major cost cutting.

Answers to other important industry questions are also uncovered by this study. They include:

  • How relationships are changing between builders, home buyers, manufacturers, suppliers, and subcontractors;

  • The business and technology improvements builders are using to reduce operating costs and increase sales performance;

  • How builder responses to the downturn vary by region and builder segment;

  • The most popular manufacturer-sponsored programs for builders;

  • Changes in home design and materials usage that have taken place in response to the housing downturn.

Builders, suppliers, and manufacturers of home building products have realized that we now face a new industry environment. To be successful in both the short- and long-term, the industry must do more than wait for sales to pick up.
The final report is available for purchase through the NAHB Research Center’s online bookstore——or by calling 800-638-8556.