With permits and sales running at very low levels through February, builders have a lot riding on the long-awaited spring selling season if they want to salvage decent year-end results. To gauge how things are going so far, Builder put its ear to the ground with an informal survey of 20 home builders across the country.
The good news is virtually every builder reported that traffic, like spring flowers, is rising. A few builders even reported higher traffic than last year, when the federal home buying tax credit was still in place. Tony Green, managing partner at The Pinehills in Plymouth, Mass., reports that traffic has doubled compared to last winter and that the company’s return visitor rate is “running at over 50% of traffic.”
The bad news, builders report, is too many shoppers walk out without opening their wallets. “We have seen quite a drop in buyer urgency over the past few months,” says Dave Barisic, vice president of Southern California builder Brandywine Homes. “Our sales agents see plenty of qualified traffic in numbers that seem very healthy, but they just can’t seem to get buyers to commit.”
And Brandywine is not alone. With a few exceptions, builders reported lousy conversion rates as buyers continue to sit on the fence. “Prospects are out in droves—I’ve had 12 opportunities since January,” Mark Kirby, president of Dixon Kirby Homes in Raleigh, N.C., tells Builder. “But there’s no urgency, no need to move quickly.”
Beneath low conversion rates, though, there’s a quiet hope. “Overall, I would categorize this as recovering, even though it cannot be counted yet in sales,” says John Wieland, founder and CEO of John Wieland Homes and Neighborhoods, which builds homes throughout the Southeast. “People are out and looking and thinking.
While prospects mull it over, builders are doing everything they can think of to help pull potential buyers out of the decision making process and into a new home. And they’re starting with discounts.
“You either lower your prices or go out of business,” says John Floyd, owner and president of Ole South Properties based in Murfreesboro, Tennessee. His company has reduced prices by as much as $10,000 in some communities and has brought them down by as much as $20,000 since their peak in 2006.
Ole South has gone back to its trade partners every year for the last four years to try to find new ways to cut costs. However, cost savings from reducing quality is off the table. “That’s not even an issue today,” Floyd reports. “Buyers want more bells and whistles than ever—a stainless steel package that used to be an option is a standard feature now.”
Ole South, like its trades and many of its peers, is working on lower margins in order to make sales. “Pricing is still on the bottom, but customers are still making deep discount offers,” says Wieland, who had a customer make an offer $130,000 lower than the price on a $600,000 home. “The customer was insulted when we came back and shaved $5,000 off the price and offered $10,000 in free discounts,” he says.
Social media and Web-based marketing is another major focus for builders this spring. Lancaster, Pa.-based Charter Homes has added a live chat feature to its website. “It’s been a gold mine for the online marketing and sales effort,” says Rebecca Fowler, the builder’s director of communication. “The online salesladies have a killer conversion rate to appointments, something like 40%.”
Ole South has also incorporated an online chat feature as part of the new website it launched recently, which Floyd says is far more interactive than the site’s predecessor. “It includes pop-ups, chat rooms, you can look at our discounted homes and specials,” he says.
The company is also posting homes for sale everywhere from Facebook to Craigslist. “Anything to get the word out.”
When Arizona builder Fulton Homes opened its Monterey Bay community as part of Fulton Ranch in Chandler, Ariz., it emailed prospects and got 5,000 click-throughs to the community’s website. Within the following weeks, 3,000 people visited the subdivision.
And not surprisingly, builders are investing in installing and advertising energy efficient features—especially as a way to differentiate from the resale market. Ball Homes in Lexington, Ky., is now offering geothermal heating systems as an option to make its homes stand out.
Energy efficiency also showed up as a marketing hook for builders trying to lure first-time buyers out of apartments, a major focus for several builders we interviewed. Renters may have trouble coming up with down payments, but they come to the market without the baggage of an existing home to sell.
H&H Homes in Fayetteville, N.C., started mailing postcards to rental communities near its new homes, comparing the cost of renting to the price of owning. Greg West, the company’s chief of staff, shows buyers the $650 per month price tag to own a 1,000-square-foot, two bedroom, two bath townhouse, and compares that to the $850 per month it would typically cost them to rent.
H&H is also emphasizing to renters that the current low interest rates are starting to creep up, making now the time to jump in.
Across the country, first-time buyers and active adults seem to be the center of the action and their preferences seem to be holding a lot of sway over what homes are moving.
Small homes are the current fashion, as first-time buyers look for starter homes and empty-nesters look for something to accommodate life after kids. Epcon Communities in Dublin, Ohio, has recently introduced a smaller floorplan that, at 1,100 square feet, starts in the $150s to $160s. Nanette Overly, Epcon’s vice president of sales and marketing services, says that most of the company’s buyers are baby boomers unwilling to go beyond their budgets, so they’re buying less. The retirement buyer “is coming out of the woodwork,” she says.
However, Fulton’s Monterey Bay has bucked the trend for smaller homes to fabulous success. Offering 3,100- to 5,100-square-foot homes ranging from the $380s to the $560s, the project has become the fastest-selling community that Fulton Homes has ever offered—even during the boom. Their secret? Single-level homes with minimum lot sizes of 87x140 feet. “We hit a niche,” says Dennis Webb, Fulton’s vice president of operations.
McStain Neighborhoods, based in Denver, is catering to smaller-home buyers by customizing even at the lower end of the square-footage range. “We have found that by being flexible and allowing even the buyers of our smallest plans to make the changes they want, we are able to keep selling and building on a modest scale,” says Caroline Hoyt, McStain’s co-founder.
Overall, accommodating customers—who have little confidence in the market and need a good reason before they’ll bite—emerged as a common thread. And while most of the looking hasn’t converted into buying yet, almost every builder we spoke with had found reason to hope. “We had a tough winter with a lot of snow, and the season is slower to get started,” says Ray Ball, CEO of Ball Homes. But despite a bad start, business has been picking up during the last few weeks, Ball says. “So there’s a little glimmer of light.”
Claire Easley,Boyce Thompson, John Caulfield, and Jenny Sullivan contributed reporting to this article.