COUNTDOWN TO SPRING SELLING SEASON: FIVE, FOUR, THREE …
Product, price, and location. They’re a home builder’s entire bag of tricks. They magically ignite a spark in the minds and hearts of people who may not have given homeownership a second thought the day before yesterday. They work every time, almost.
Now that the Patriots’ Super Bowl LI huge come-back victory is history, it’s time to see what will work this next stretch of the cycle.
Right now, amid scarce existing home supply, peak rents, a more accommodating credit box, and a load of apparent pent-up demand, product, price, and location stars are aligned.
Except, there’s all this pressure on price.
Labor cost is a variable pressing upward now, because–net, net–there’s more work than workers, at least in many places. Land cost is a variable pressing upward now, because lot supply in proven sub-markets is hard to come by, and they’re laden with local entitlement charges, hook-up fees, and permitting costs, and there’re more buyers than sellers in those proven grounds. Input costs on materials–especially those whose pieces and parts source from places beyond United States borders–have, after all, now shifted over to being a variable pressing upward as well.
Pressure on builders’ costs has more or less always meant one of two things, pressure on their margins, or an increase in prices.
An upward push on labor, land, and materials expenses now, at the lower average sell price tiers, and the newly moving target of rising interest rates is an assault on builders’ capacity to deliver homes in that solid alignment of stars–product, price, and location–it takes to finally jump-start a market. Those on the cusp of homeownership, those who may not have been thinking of it yesterday, but can do it today, those border-line buyers on a determined path of upward mobility–they’re the ones who make American Dreams more than idle fantasy.
A business model that seizes control of costs on a product and in a location that can be compelling to that real-time contingent of American Dreamers is a big part of the story of 2017, 2018, and beyond.
Those upward pressing variables on direct costs–lots, labor, materials–with the added monthly-payment challenge of interest rate drift put builders at risk if their model and execution does not 1) eliminate cost-creep due to delivery dead-line pressures, and 2) eliminate waste trapped in workflows that turn dollar problems into thousand dollar problems.
Ashton Woods’ new brand and business model, Starlight Homes, reflects a strategy that–like LGI Homes and D.R. Horton’s Express line, as well as a handful of other private home builders–seizes control of these two factors that impact the ultimate price for its products: it will sell “inventory homes,” which means it will build spec homes, reaching back into and channel their Fox & Jacobs pedigree for even-flow production philosophies, a managed construction cycle time and quality for every work in process, and flawless execution on a finite–but compelling–portfolio of repeated floor plans.
How many discrete, conjoined workflows go into building a home, or six homes concurrently in the same project? What is the p&l on each workflow? Where is time lost? Where does a simple error magnify into a costly repair, or, worse, a major warranty issue? Is the learning-curve on building a particular floor-plan scalable to the point where the 20th version is more measurably more profitable than the first 19?
The Starlight strategy envisions a typical buyer who’s renting. One who’s capable of owning today by may not know it. One who may have been shut out on a try or two at buying a resale, but couldn’t swing competing on a bidding war to land the deal.
Spring selling season. Everyone knows its actual start and finish dates are fluid, and almost everybody knows the forces that make it a real phenomenon in the American economy are in flux and full of uncertainty. Pent-up demand, after all, is only authentic when it ceases to be pent up and becomes real, transactional demand.
Homeownership in a vital new community in a compelling 2,000 square foot, two-bedroom home, for a price of $850 to $1,200 a month just may be enough to spark the not-yet buyer to become a now buyer if he or she thinks that opportunities like this one don’t come often. That buyer may need some personal financial hand-holding, and a set of tools and tactics to move from the point of awakening to across the finish line. That’s what Spring Selling season may be all about in 2017. Bringing a buyer to an already-waiting new home he or she never knew they wanted, but now they feel they need. Selling.