It’s almost unfair to publish such a backward-looking list as this year’s Builder 100. As if anyone needs a reminder, 2008 was a terrible, terrible year for the largest home building companies. More than a dozen companies from the year before fell victim to the economic sword in 2008. The largest companies once again lost market share to the industry at large, providing further proof that big doesn’t necessarily equal better in the cyclical home building industry. Even so, the companies on this vaunted list—perhaps some still remember the days when making a list of the 100 largest companies in the industry was a cherished business goal—are survivors. They have endured four years of unprecedented turmoil to fight another day. They are likely to gain considerable market share going forward. So many builders have gone out of business, or quietly retreated into remodeling or commercial work, that the ones that remain should get a disproportionate share of the upswing when it finally arrives.
Seize the Day
But that will depend on whether companies mobilize now to seize new opportunities. It’s time to turn attention from stopping the bleeding to setting a new, sustainable course. As our reporting shows, many Builder 100 companies have reworked their business models and are centralizing management, taking fewer risks, and forging new financial relationships. The best leaders are rallying the troops around new missions that may be as simple as growing the business, providing unprecedented customization to today’s young buyers, or building homes that tread as lightly on the earth as possible.
The key is to create a sustainable business model, one that will keep companies in business for the long term and protect them from the vicissitudes of the credit markets. Even the largest builders are separating home building from land buying activities, reluctant to take on debt to buy land. They are emphasizing infill, in-town, and on-your-lot opportunities, which have been holding up better during the downturn. They are diversifying into apartment and commercial development to provide a steady future cash flow.
Dreams of bigness for the sake of bigness seem to have been forgotten, or at least temporarily put on hold. Even when Pulte announced its intention to merge with Centex and create the largest home building company in America, the leaders of both companies said that size didn’t motivate the deal. They even intimated that, in many respects, big doesn’t equate to better when it comes to home building companies. No, they said, this deal was all about creating a single stronger company with fewer liabilities that could better compete in the future.
Builder Confidence Returns
The good news is that a fresh wave of optimism is rolling through the industry. Even as sales and starts show little improvement, builder confidence, as evidenced by the most recent NAHB index of home builder sentiment, is on the upswing. Reports are coming in from around the country that buyers have returned to model centers, making the rounds with real estate agents and in general wondering what they can get at today’s prices with today’s interest rates.
Rest assured: Even if market conditions begin to mend, this will be a tough year for home builders. Four years of contraction have left deep financial wounds. But there’s plenty of fight left in the industry. And a higher degree of difficulty only makes the end result of reinvention more satisfying.