Overpriced and oversupplied markets don't happen overnight. This one took 15 years to occur. Now, it will take a few more years for affordability and inventory levels to come back in line with 3 percent salary increases and moderate job growth trends. This housing-only recession is now two years old. How much longer it lasts is not the point. Rather, we should be asking, how do we prepare the coming market?
Today, downsize your business; be sure your people are the best in their area; and hold on until your old inventory is gone.
Tomorrow is about preparation.
Infill has been stealing huge share from the outlying suburbs and will continue to do so with young buyers. Warm climates still get the most traffic.
Redesign for new households. Design product as cost effectively as a municipality will allow. Sell the architecture as period architecture, not boxy plans. Look into Energy Star compliance. It doesn't cost too much, and the technology addresses warranty issues, which too often result in lawsuits and high insurance premiums.
Pay attention to streetscape to differentiate your homes and communities from other builders. Floor plans must address the new size and make up of today's home buyers. Who needs a living room anymore? Add an iPod whole house system in every home. Do we waste square footage with too many bedrooms when buyers really want exercise rooms or more storage? What special spaces have we created on the first floor: mom's room, art space, computer room for all, pantry, locker storage at garage entry, etc.?
Invest in models. Some day, model parks may be a thing of the past, but not yet. You must show your design and professional abilities in model homes. Work with the best architects and interior design companies to show better than the rest.
Reduce advertising dollars. Advertising is overdone. Advertising incentives are the last thing you need right now, and it costs too much to try to buy the traffic. Instead, get the word out that you are a quality- and design-minded builder and let the buyer make the call on your value when they get to your site and meet with your people. Create a unique selling proposition on site.
Finance all land with landownerS. Large builders have defaulted on many properties over the last few years. You can buy the balance of these properties at a lower price and expect good interest rates, smaller take downs, and less risk. Partner with other small builders to create a sense of place and be more efficient on larger parcels.
Train, train, train. Spend the big bucks on sales training. Hire the best and train them to be better. Attend every local home builder seminar. Hold morale challenges and be sure everyone gets a chance to win. Bring in one of the best trainers and revamp your program.
Get supervisors on site. Construction teams need to get off the computer and into the houses with trade partners. Train the construction staff in time-saving techniques and ordering techniques. Organize lunch-box talks to improve quality control and safety. Speed is not the most important construction issue for a private company.
Make warranties profitable. Warranty has been a clean-up job for many companies, spending thousands per home fixing mistakes and design flaws while losing the confidence of buyers and trade partners. Warranty should be a profit center. Fix "everything" in a tough market, but redesign immediately so there is less to fix in the next home.
In 1979, we did not know when the market would come back, nor did we in 1991. We weathered the storms and prepared to be excellent later. Fewer of us were around after each downturn. But I would submit that it was then that we really enjoyed the challenge of being home builders.
–Thomas Ryan is the former CEO and owner of Town & Country Homes. E-mail: firstname.lastname@example.org.