Troubled Times
Along with the builders in Sacramento, small home builders in some of the nation’s other depressed markets are also finding business conditions difficult.
Troubled times for the automotive industry in Michigan have reached the Kalamazoo market, which hosts numerous supplier jobs in the eastern portion of the state that service the big three auto makers.
Don Watts, CEO of Watts Construction Co. in Kalamazoo, says his company peaked at about 29 homes in 2005, but as of mid-December the company would be lucky to close 10 homes in 2007.
“We’re off quite a bit, but we haven’t laid off workers and we’re trying to diversify,” Watts says. Fortunately, like many other small builders, his company does not have an excessive inventory of spec homes and has good credit.
The company’s strategy is to mix it up by building starter homes in the $130,000 to $170,000 range and selling higher-end condos at $200,000 to $450,000. Watts also owns a small industrial park in which it builds light-industrial buildings.
Although the Kalamazoo builder is selling high-priced condos for his region of the state, Watts says his company is different because it offers customized features in the condos.
“We’ll customize to meet the lifestyle wants and needs of the buyer,” says Watts. “We’ll modify the interior design, do custom painting, as well as custom trimming on shelves and niches, cabinetry, and fireplaces,” he adds.
Watts says home builders have to be flexible today. For him, if that means waiting 90 days until the customer can access money, then he’ll hold a house at the originally agreed-upon price. Watts Construction will also work out trade-in deals with home buyers who are having problems selling their existing homes.
“Our objective is to be flexible,” says Watts. “For every client who’s viable, we’ll be as flexible as we can,” gently pointing out that builders need to work with home buyers, not dictate to them.
That may be the most valuable lesson to keep in mind for 2008. Even at the high end where credit-worthiness is less of an issue, buyers have more choices than ever. There’s still a place for smaller builders with experience, but expect more competition as employees who used to work for larger builders form companies. For right now, though, smaller just might be better.