The Reality of Today's Market

In this article I thought it would be valuable to share some of the information we have been able to gather during the first quarter of 2008. Most of this information has come from the NAHB Committee meetings and the IBS show held in Orlando in February.

Most of the allocated time was focused on the current market conditions and what we can expect in the future. There is a lot to discuss on these topics and space will not allow for detailed discussions within this article. If you are interested in additional information please contact us.

The NAHB feels that most of the bad news is out (Sub-prime, foreclosure, builders going out of business, etc.).

While we feel this is generally a true statement there will be more bad news. The foreclosure issues have just begun to surface and will continue to be in the news. The key here is to understand the builder has the responsibility to report on the good news, like it is a buyers market and the January new home sales figures, and move your prospects past the fears the media is perpetuating.

The NAHB suggests material costs are going to continue to squeeze the already diminishing profit margins. There are two exceptions lumber is at a 20 year low and drywall is lower by 20%. Concrete will rise, steel is going up, and copper is going way up.

The only way for builders to combat the profit squeeze is by reducing direct construction costs using value engineering techniques and redesigning products. Those builders that focus on reducing direct construction costs will achieve far better results during the downturn. This concept is obvious to all of us. Now is the time to stop thinking, talking, and worrying about it and put a plan of action together to get results.

NAHB Economists advise the Government stimulus package will help stimulate new home sales especially by raising of the FHA limits. The FHA can insure to $729,750 in the highest-cost areas, up from a previous cap of $362,790.

This should have a positive impact on those builders that build move up housing in most markets. While this will provide some improvement, the credit crunch has limited the amount of mortgage money available. As a matter of fact, in some markets, buyers need to have credit scores in excess of 750 to even be considered.

A National election almost always boosts consumer confidence so expect the fourth quarter to show better sales activity (regardless of who wins).

Great news, use this information to make sure the homes you do sell during this time have lower costs and higher margins. Use the six month lead time and act by reducing your construction costs. Caution this recovery may or may not be the much anticipated upturn according to some economists.

Three economists have three different views of the housing market and when we can anticipate "the bottom". According to the NAHB we should look at the end of Q3 for the bottom. Another view came from a Bank where they are forecasting Q3 of 2009 for the bottom. An independent Industry economist predicts the bottom in late Q4 or Q1 of 2009.

No surprise here, 3 economists with 3 different points of view. We should be happy there were only 3 and not 4 different forecasts. So how can we use this information? Well, it is clear we are not returning to 2006 sales numbers anytime soon and 2008 is going to be a rocky road. The good news is that all three forecasts indicate we are going to have a predictable business again in 2009. While the market is not where we want it to be we can build a business plan around it. This brings up a very good point. You should redevelop your business plan for 2008 and 2009. Share it with your lender or lenders. In a downturn it is better to over-communicate with your bank. If they come to you asking for new information there could be an unpleasant surprise attached, like a reduction in your credit line or a higher equity requirement.

Green is the "hot topic" and had the highest level of interest in the educational sessions offered at IBS.

Green building is being adopted faster than anything I have seen in my 28 years involved in this industry. And there is good reason for it. Green Building is here to stay and the consumer is driving it. Building Green is a reaction to the buyer and it is something we can do that has real value to the buyer. A huge plus is there is significant PR value when we deliver the message to the public that our industry should be seen as an environmental leader. Finally, "green" done right is worth real bottom line dollars to the builder.

So this is a lot of good information and one clear message emerges "Build lean, build green, and build a business plan for the new reality of the market." Do it now and prepare your organization for 2009 with improved systems and processes to take advantage when the market turns.

About the Featured Author:
As a respected consultant and national speaker, Craig Schweikart has developed and presented numerous seminars to homebuilders. He has spent over twenty years advising homebuilders on system selection, process management, and profit improvement.

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