Five of home building's leading ceos, (left to right) Meritage's Steve Hilton, Shea's Bert Selva, TRI Pointe's Doug Bauer, Toll Brothers' Doug Yearley, and Standard Pacific's Scott Stowell discussed housing, home building, and development's challenges and opportunities with Hanley Wood vice chairman Frank Anton at BUILDER and Metrostudy's Housing Leadership Summit in Laguna Niguel, Calif.
Optimism, an aggressive posture on growth and opportunity in 2014 and beyond, an emphasis on executional excellence, focus on market segments that are working vs. those that are tougher, and a sharpening awareness that company cultures need to transform in order to welcome much-needed young talent into home building were highlights of a candid, high-energy conversation that keynoted HLS's agenda yesterday.
Anton's opening remarks challenged home building leaders' pervasive focus on "speed" and execution rather than on customers' evolving needs and desires in today's choppy marketplace, a question Standard Pacific ceo Scott Stowell reframed. Stowell noted that his team's emphasis on velocity, efficiency, and precision in execution all funnels into being able to deliver quality, high value, and satisfaction among customers. So, a strategic focus internally on speed is, in fact, synonymous with customer focus.
Each of the home builders in the conversation noted that the biggest opportunity for market traction continues to be in first-, second-, third-time move-up and higher-end segments of the housing market, and while they recognize those parts of the market are finite, and will not run on forever without the participation of the entry-level, their teams will focus on bright spots in active adult, move-up and higher-end parts of the market.
Price points, and home buyer elasticity vs. push-back on price increases were a central part of the conversation. The ceos affirmed that last year's mid-year announcement by then-Federal Reserve Chairman Ben Bernanke that the Central Bank would pare back on monetary policy that keeps interest rates at historical low-points combined with "sticker-shock" among home buyers to stall the momentum in the market.
Each of the home builder ceos now looks price increase decisions on a carefully managed, weekly, community-by-community basis, attempting to balance the pace of demand with the capacity to bring more homes into their respective pipelines.
"We look at each neighborhood, and if we know that, looking at the local labor constraints, any material, local permitting, and supplies constraints, and other factors that may slow us down in deliveries we're going to have a longer construction cycle, then we'll raise prices in that neighborhood to meter the demand," said Toll's Doug Yearley. "When we know we've got capacity, a reliable subcontractor base, and systems in place to deliver our products in a shorter timeframe, we'll keep our prices pretty much where they are."
Cadence for price vs. pace, a micro-managed process that carefully balances demand with the capability to supply the market profitably, has emerged as one of the key skill-sets among larger home builders.
At the same time, consensus among home building leadership is that greater emphasis needs to focus on millennials, both as a buyer universe and a next-generation workforce and leadership pipeline.
Yearley spoke of having visited Google offices in New York, where workers wear tennis whites and play foosball, ping pong, spontaneously gather around guitar players to sing Beatles songs, noting that home builders need to work on their corporate cultures to attract younger talent.
"So I bought a foosball table for our offices in Horsham," Yearley quipped.