When a professional baseball player’s batting average dips under .200, it’s said he’s fallen below the Mendoza line. Well, the housing industry has been whiffing more than it’s been making contact lately, and hasn’t risen above its own Mendoza line—400,000 units sold—for the past two seasons.
Builders found buyers for only 323,000 of their houses (excluding condos) in 2010, according to U.S. Census Bureau estimates, down nearly 14 percent from 2009’s almost-as-hapless performance. When bank sales of foreclosed homes outrun builders’ sales by more than 2 ½ to 1, as they did last year, you know that much of the housing industry was left standing at the plate looking at third strikes.
Given that many ballparks where builders play remain sparsely attended by buyers, some wonder why any new homes got started. But they did, and they exceeded the previous year’s numbers for total and single-family starts by nearly 6 percent, rising to 586,000 (total) and 471,200 (single-family) units, respectively. One factor behind the surge might have been prices that continued to improve nationally, by 24 percent over 2009, to a median of $221,900.
This much is certain: The housing sector continues to be a market-grab play for the industry’s largest builders. And price discounting is the name of the game. In such an environment, winning and losing are relative terms. For example, in 2010 the top 10 builders captured nearly one-quarter of all closings (including condos), versus one-fifth in 2009. But because the overall pie was smaller last year, these builders collectively closed 87,628 homes in 2010, versus 89,578 in 2009.
A handful of builders reported significantly higher percentage gains in gross revenue than closings, an indication of how they’ve diversified into areas other than residential construction. Sares-Regis Group, for one, increased its multifamily and commercial property management portfolio and generated revenue from developing and selling land, explains its chief accounting officer Michael Heiken.
The housing market, like baseball, doesn’t command the nation’s attention as it once did. But building homes, like playing baseball, isn’t ready for history’s dustbin just yet. The four builders we profile on pages 60 to 67 in this issue scored big victories last year. They weren’t alone, either. Success came in many forms:
- “Hope isn’t a strategy,” says Greg Lingo, owner of Cornell Homes of Broomall, Pa., a builder of infill homes. “We plan our sales activities in places where people want to be.” With nine active communities in the Greater Philadelphia area, Cornell enjoyed a 90 percent increase in closings, to 129; and a 68 percent gain in home building revenue, to $34.6 million. It targets buyers looking for a combination of location and affordability with homes that average 2,200 square feet and three bedrooms. More than half of what Cornell builds is attached, and all of its products are Energy Star certified.
- Carefully plotted expansion drove Louisiana’s DSLD Homes. The company grew its community count to 34, from 20 in 2009, and saw its closings jump 53 percent to 363 and revenue increase 58 percent to $60 million. DSLD recently joined forces with another company, McNair Builders, and Saun Sullivan, one of DSLD’s owners, thinks the combined companies can close more than 600 homes in 2011.
- Three years ago, Allen Edwin Homes in Portage, Mich., “saw the storm coming,” says president Scott Sanderson. It switched from building semi-custom homes to becoming “more value focused,” selling houses priced as low as $120,000. Subcontractor cooperation helped this builder cut its cost per square foot in half. The company entered 2011 with a backlog of more than 85 contracts and expects to close 500 homes this year.
- Gentry Homes in Honolulu, Hawaii, builds exclusively in a master planned community called Eva by Gentry, where it closed 137 homes last year. That was 50 percent below its peak years. What saved Gentry, says vice president of sales and marketing Rick Hobson, was its contract with the Department of Hawaiian Home Lands to provide affordable housing for indigenous people. Gentry Homes closed 138 houses under the contract last year. It won that contract, says Hobson, because Gentry pushes energy efficiency “while everyone else is value-engineering their houses.”