Part leadership school, part town hall meeting, and part locker room halftime coaching session; that was the feel of the latest business improvement seminar from Chuck Shinn and the Lee Evans Group cast of experts. Roughly 25 home builders gathered in Denver in mid-January, and with snow-covered mountain tops setting the background, sat in a hotel conference room and listened to the gory details of the current housing market.
But many of the builders felt that Shinn was preaching to the choir.
"It's funny," one builder said at the onset of the session. "The people who don't need to be here are here, and the people who do, aren't here."
Too bad, because attendees also got a hefty dose of advice on how to survive 2008, and even some tips for taking advantage of current market situations to make money.
First, builders and their manufacturer partners heard how following the National Association of Home Builders (NAHB) economic forecasts blindly led them down a path to financial ruin.
"This is going to be longer and deeper than any housing cycle we've ever had, nationwide," Shinn told the audience for openers. "Most people can't say this, but I can because I used to work there, [the NAHB] totally missed the forecast for this cycle."
Shinn, who worked at the NAHB from 1968 to 1975, says 2008 will be worse than 2007, and the reason is the level of unsold inventory nationwide. Builders listened to the NAHB's early forecasts that the housing recession would be shallow and would be back and booming in 2008. But it didn't play out that way, and many builders kept on buying land and building, and many manufactures built plants and products that there is now no market for, Shinn said. In the end, too much inventory will choke the market again in 2008.
"There's just too much out there," he said.
HERE TODAY, GONE TOMORROW
Fifteen percent of the home builders who began 2007 are out of business, and another 15 percent could go under in 2008, said home building consultant Robert Siegel, founder of Robert Siegel and Associates, based in Kenner, La., and a speaker at the Denver seminar.
The Federal Reserve Board cutting interest rates is a sure sign of recession, because historically, the Fed only lowers rates during a recession, Siegel said. Builders should already have responded to the market and right-sized, cut overhead, streamlined operations, or done whatever they needed to do to stay afloat. Siegel gave builders an equation to use to be able to tell if a market was ripe for building in or not.
Siegel suggested dividing employment change from the same month a year ago by the number of building permits in that market over the last 12 months up to the month being considered. If the E/P ratio is over one, then it is a market with growth possibilities, Siegel said.
"Employment is becoming a leading indicator of housing activity," he said, and he encouraged builders to dedicate staff to checking both data sets regularly.
Siegel told the builders to expect recession this year, with at least a quarter of negative economic growth and no bottom in housing nationally, until 2009. And there is still a very real chance of a global economic recession, he said.
Because of the down market, many builders will be looking to sell land, and for an opportunistic builder with cash reserves, a recession is the best time to acquire properties.
"That's the way to play the game," he said. "Counter-cyclical."
While many builders are in a panic about how bad the housing market is, and it is bad, Ross Robbins, an operations and marketing consultant with the Lee Evans Group, said that it appears far worse than it really is.
"We've been spoiled," he said. "It's all relative. It only looks so bad because it got so high."
Still, the housing market, and probably the overall economy, is in recession, and the quality of a home builder's sales force is only growing in importance as the market continues to flounder. And the longer the downturn lasts, the more apparent it is that many members of the housing sales force are not up to the task, Robbins said.
Robbins himself is in the market for a new home and has recently visited a number of builder sales offices and model homes. The biggest problem, he says, is that they talk too much and listen too little.
"They are really lousy at figuring out why I want to buy something," Robbins said. In fact, nobody asked him why he wanted to buy a new house.
Robbins told the home builders in Denver that because the market was so bad, and buyers are wary of the economy, conversion ratios for builder sales forces should be up. The people taking the time to come to a model home in this market must have to move, or need to move, and are motivated buyers, he said.
Sellers need to have the right script, and need to be trained on what to say. It would be foolish to ignore the bad media he said, you have to acknowledge it. But instead of making the decision about economics and whether or not it is a good time to buy, make the buyer think about it emotionally.
Builders should also free up salespeople from models where they are getting little to no sales traffic, to go out into the community and drum up business. Robbins said builders need to take the attitude of the buzzard who got sick of waiting for a carcass to appear and said to the other buzzards, "Patience my eye, I'm going to kill something."
Learn more about markets featured in this article: Denver, CO.