D.R. Horton must have workedup quite a sweat in Las Vegas in 2009, a year in which home sales there dropped by 48 percent. Horton, the industry’s largest builder in closings nationwide last year, nearly tripled its market share percentage in Sin City to 15.5 percent. But because the total number of closings in Vegas was significantly smaller in 2009 than in 2008, Horton’s numerical closings in that market, at 875, exceeded its tally in 2008 by only 63 homes.
So it went for other builders across the country, too: They found that getting customers to the finish line last year was the toughest it’s been in recent years, especially for buyers struggling to unload their old houses or to find mortgage financing for new purchases. And any new houses that builders had available to sell competed, in virtually every market, against a surfeit of unsold existing inventory, much of it foreclosures. Las Vegas, for example, was one of the top three markets in distressed home sales last year, according to RealtyTrac.
But business conditions and buyer demand, while still pallid in most places, improved in some markets, and a few builders actually enjoyed growth. In Nashville, Tenn., Goodall Homes increased its closings by 46 percent. Dragas Homes again led the Virginia Beach, Va., market after its closings in 2009 were 20 percent ahead of what the builder had budgeted.
“There’s been some healing on the residential side,” observes Todd Seneker, investment director for Schnitzer West, a Seattle-based commercial developer that succeeded last year in selling condos in two of that market’s distinctive neighborhoods: Capitol Hill, where Schnitzer’s Brix project sold all but 13 of its 141 units through April 2010; and in Belltown, where its Gallery project sold 164 of its 231 units. In Los Angeles, market conditions are also “clearly better,” says Matt Koart, CEO of Beverly Hills–based Shapell Industries, whose most productive community in 2009 was within its 2,300-acres at Porter Ranch in the San Fernando Valley, where Shapell (under its statewide brand Shapell Homes) is building nearly 8,000 homes ranging from 1,100 to more than 5,000 square feet.
Our annual Local Leaders survey, which ranks builders by their closings in the 50 largest metropolitan areas, as measured by permits, reveals the full spectrum of the industry’s volatility. Several metros—such as Washington, D.C.; Tampa, Fla.; Philadelphia; Virginia Beach, Va.; and Columbus, Ohio—made big leaps in their ranking positions compared to 2008, which might indicate they were already on the mend. Other markets that have defined both the housing boom and its bust continue to slide: Atlanta ranked 12th in 2009, versus fourth in 2008; Las Vegas fell to 16th from 10th; Orlando, Fla., to 27th from 15th.
In Orlando, M/I Homes snuck onto the list of closing leaders, as that Ohio-based builder is striving to expand its reach beyond the Midwest. Later this year, M/I expects to start its first homes in Houston, the country’s largest housing market in 2009, where home starts finally began showing some life again in the fourth quarter.
M/I maintained its top dog status in its headquarters town of Columbus, as did other big builders such as KB Home in Los Angeles, Richmond American in Denver, and McBride & Son Enterprises in St. Louis. But there was plenty of reshuffling within the top 10 lists, too, as evinced by Seattle, Chicago, Los Angeles, Philadelphia, and Virginia Beach, Va.
A big factor affecting the pecking order among Local Leaders within markets was the union of Pulte and Centex, which elevated PulteGroup (as the merged corporation is now called) into the No. 1 spot in 12 of the top 50 markets, versus five markets in 2008 where either Pulte or Centex ranked first. Pulte Group’s gains sometimes came at the expense of Horton or NVR, even as each of those builders finished No. 1 in seven and five markets, respectively, in 2009. (In Philadelphia, NVR leaped over Pulte into the No. 1 spot.)
Staying atop a market required builders large and small to reinforce what they stood for in buyers’ minds. In 2009, Michigan-based PulteGroup hired its first chief marketing officer, Deborah Meyer, formerly with the auto industry. Recognizing that rebranding is key to sustaining its leadership, PulteGroup now markets Centex as its entry-level brand, Pulte as its move-up brand, and Del Webb as its active adult brand. “This is less about price points than it is about meeting buyers’ lifestyles,” asserts Caryn Klebba, a Pulte Group spokesperson.
Some perennial Local Leaders, such as Beazer Homes USA, are far less visible within the 2009 rankings because they’ve either exited markets or curtailed their production in them. Public and big private builders now dominate the landscape in Sacramento, Calif., for example, because they’re the only ones left standing in a market once crowded with more than 80 active builders. Scott Stowell, Standard Pacific Homes’ COO (which itself exited San Antonio in 2008), points to a “builder exodus” from San Diego, where the community count—which at the peak of the housing boom was 123—fell to 49 last year and is now at 23. In the Nashville, Tenn., area, Keith Porterfield, COO of Goodall Homes, says that at one point last year “we estimated 30 percent to 40 percent of our competitors had either gone out of business or had drawn back to one or two communities.”
Bankruptcies surely played a role in disrupting market order in 2009: Builders that were in the mix in 2008—such as McCar Homes in Charlotte, N.C.; C.P. Morgan in Indianapolis and Charlotte, and TOUSA in several Florida and Texas markets—aren’t factors anymore. “We were able to take advantage of that to a minor extent,” says Mike Conley, division president for Eastwood Homes in Charlotte, which was named that market’s Builder of the Year by its local HBA. With McCar and C.P. Morgan—both entry-level builders—out of the picture in Charlotte, “we stabilized our market position and pricing.”
Both PulteGroup and Eastwood Homes are, in a sense, reintroducing themselves to buyers who probably haven’t thought much about purchasing a house over the past three or four years. Image building was of utmost importance for many Local Leaders, and it often began with the always-tricky equation of quality plus affordability.
Shapell Industries, which is generally regarded as one of California’s higher-quality production builders, sells homes in the L.A. area priced from the high $300s to $1.3 million. A “significant percentage” of its 2009 volume “came from lower- to mid-range niches,” says Koart, leading the company to focus on product for that segment.
Learn more about markets featured in this article: Las Vegas, NV, Charlotte, NC, Atlanta, GA, Dallas, TX, Los Angeles, CA, Virginia Beach, VA, Seattle, WA, San Diego, CA, Charleston, SC, Phoenix, AZ, Richmond, VA, Miami, FL.