John Young is down to the third or fourth manpower cut at his company, Young Homes, a builder and developer in California's Inland Empire, whose closings last year fell 45 percent to 150 units, and whose revenue over the past two years dropped 72 percent to $70 million. To survive in a market that's 65 percent controlled by large public builders, Young sold 250 acres of industrial property in 2007. And this year, Young Homes -- which already caters to first-time buyers -- will build smaller, even more affordable homes.
Getting more from less was a common theme expressed by small builders and remodelers who participated in a seminar at the International Builders' Show in Orlando on Thursday that focused on how to weather the housing downturn. In most cases, the panelists had seen sharp declines in their businesses over the past year or two. However, all of the speakers expressed confidence that they would get through this period, and would be prepared to grow again, even as they are adjusting their business models to new market realities.
Young isn't the only builder who said his company is planning to focus on offering basic homes at lower prices as a way of stimulating more sales volume. In one of its subdivisions in Seattle, Camp Construction of Tacoma, Wash., last November went to "bare-bones pricing" and for the first time offered a starter home priced under $200,000, said its owner Bob Camp. Last year, interest payments absorbed all of Camp's profits, so his goal this year is to reduce that interest by 50 percent in 2008. To generate more revenue, Camp Construction -- which expects to sell 60 homes in 2008, versus 35 last year -- moved 30 unsold homes in its inventory into its rental portfolio, and anticipates that some of the 14 homes under construction (on which the builder lowered the selling price by $20,000) would become rental units, too.
Camp advised builders in the audience who are struggling to "look at your plan every day, and don't crawl into a hole." Indeed, the panelists urged the audience to view their markets more realistically and soberly. "Profit is not a birthright," said Steve Lawson of The Lawson Companies in Virginia Beach, Va., which is weathering the housing storm through diversification into multifamily construction and apartment management; the latter provides a steady cash flow stream. "Cash flow is absolutely critical" to surviving the downturn, he stated.
The panelists, in general, were not panicking, and saw the downturn, despite its immediate severity, as temporary. Tom Woods, who owns T.E. Woods Builders in Kansas City, told the audience that his company's traffic since January 1 had risen 100 percent -- to 440 customers from 212 -- compared to the same six-week period a year ago. This traffic tells Woods "there are potential buyers out there." The challenge for his company, and other small builders, is getting enough of those buyers off the fence and interested again in purchasing a home.
"We're not in crisis mode, and are still two times break even," said Kevin Estes, who owns Estes Builders in Sequim, Wash., which projects 18 to 19 closings in 2008, about the same as last year, but significantly off from the 38 it closed in 2005. His company is retraining its personnel and its contractors to focus on sales and marketing, and for the first time Estes will spend 1 percent of its revenue this year on marketing. "We've committed to publishing 12 press releases," said Estes, who is still convinced that now is a good time for smart builders to pick up market share.