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As 2011 opens, readers responding to Builder’s annual “State of the Industry” survey describe a new reality for their businesses and their markets. The gut-wrenching free fall of 2008 and 2009 seems to be over, and many building businesses appear to have stabilized in 2010. But for almost all builders, that new equilibrium is at a lower level of activity—and any rebound, even to pre-bubble levels of production, is still far in the unknown future. For the present, builders are adjusting to what could be a prolonged period of slow sales, tight margins, and a daily struggle to make ends meet.
Builders’ views of economic conditions have leveled off. Between 2008 and 2009, the proportion who saw conditions deteriorating dropped from 74 percent to 42 percent, while the percentage who saw things improving tripled, from 6 percent to 18 percent. But by the end of 2010, only 14 percent still thought things were getting better, and 45 percent said things were getting worse. Only about four in 10 saw conditions as stable going into this winter—roughly the same proportion as last year at this time, but still up from the crisis months of the early winter of 2008.
What about builders’ view of the prospects for their own particular companies? Here, we see a surprisingly stable picture from year to year, with builder attitudes evenly distributed among optimism, pessimism, and neutrality (see chart, “Next Year’s Outlook”). The share who see their companies’ outlook worsening has dropped slightly over the past three years, while the share who see prospects brightening has crept upward. But the largest group, by a nose, remains the 36 percent who see things this year as about the same as last year.
But last year was one of the country’s worst years for housing starts and new-home sales since the federal government started tracking those numbers in the early 1960s. So builders who are on an even keel going into 2011 are like a football team in the middle of a tough third quarter. If you’re still in the game, that’s good news. But this is certainly no time for an end-zone celebration.
Survey answers show builders continuing to tighten their belts. But at the same time, the answers to open-ended questions, combined with comments made during extended follow-up interviews, reveal that many builders are discovering pockets of opportunity—and are finding ways to take advantage of it.
Many builders are still laying off workers—the survey shows 47 percent have cut staff in the last 12 months. But that’s down from 53 percent last year, and 57 percent the year before that. And this year, a significant slice—9 percent—told us that they’ve actually added staff. While still minimal, that figure is the highest level in four years.
Vermont custom builder Steve Sisler is one of those who have beefed up their payrolls—and he says now is a good time to be hiring. “If you’re still hiring in bad economic times, you can get good people,” he says. “And those four hires I’ve had have been excellent—really highly qualified.”
Builders still report that they’re reducing the size of their new homes—for the fourth year in a row. “Build smaller homes,” “value-engineer to achieve more bang for the buck,” “design for a different buyer segment or price point” (typically, starter homes and affordable housing), and “build with less expensive materials” continue to rank at the top of design changes builders have made to adapt to a tight market.
And builders aren’t just down-sizing their homes: They’re shrinking their margins, too. “We’ve had subs do price increases, and we’ve held our prices the same,” Andre Spinelli of Spinell Homes in Anchorage, Alaska, the state’s largest builder, explains.
And everyone is working on ways to be leaner and more productive, even as they diversify into new niches. In the survey, Sisler commented, “We have streamlined back-office operations, purchased more fuel-efficient vehicles, minimized tooling upgrades, opened a home energy audit division, continued with our newsletter, and enhanced our website. We have also invested in technology to make our project managers more productive in a variety of locations.”