As the housing market continues to bounce along the bottom, home builders and remodelers may think the best thing to do is to hunker down and lay low until the economy rights itself. But that’s not a good idea at all, according to panelists participating in an NAHB webinar last month.
“It’s not a viable strategy,” said moderator Ron Robichaud of Robichaud Financial Services, adding that home building professionals need to look for ways to change their business now — or they won’t survive.
When the downturn first became evident, “we listened to those predictions for a soft landing, but instead we sailed into a perfect storm” of changing consumer expectations amid a looming federal deficit. “A return to the 2004-2006 market,” when healthy profit margins were the norm for most home builders, “is not going to happen,” he said.
From 2002 to 2005, Robichaud said, an estimated 78% of the growth in builders’ profits came from land.
Robichaud spoke along with Steve Black, the owner of Stephen Black Builders Inc., and Joe Pfeiffer, president ofBusiness RIO Inc. in the Aug. 17 webinar, "Business Operations: Successful Strategies That Work in Any Economy." A recording of the webinar is available for purchase.
“You know your market,” Robichaud said. “You know the geography and the economy, and you have relationships with the community, and you have skills and expertise, so you need to identify and maximize opportunities. No town or community is static — and in the course of change, new opportunities emerge.”
For example, depending on where they live, many baby boomers who helped fuel the hot home buying market may want to downsize because their children have left home but find moving more difficult because the value of their home has declined. Creating product for that specialized niche might be the way to thrive in those markets, he said.
“As the market stabilizes, it will be very difficult for the small builder to compete with the highly capitalized larger builder who is committed to control the housing market,” he added. “The small private builder has a very big target on his back” and must be “nimble, flexible and creative” to make the most of opportunities as they arise.
Black said that he has been able to score success by becoming a jack of all trades. “We have to start expanding how we do business,” he said.
For instance, working with restoration companies that usually outsource the work can provide an ongoing revenue stream for a builder, he said, while fostering profitable new relationships.
Black also cited retirement communities as a source of new business activity.
“These communities present a great source of work due to the constant turnover of people," he said. As residents leave independent living cottages for nursing facilities, the homes they vacate need new carpet, doors, repainting and more.
Pfeiffer agreed. “The only way home builders can expect to survive is to learn new skills, use new tools and invest their time differently,” he said. “It’s risky, but it must happen to effectively address change. That’s why hunkering down won’t work. The changing conditions and increased competition mean the change is going to be permanent — and new changes are coming,” he said.
Having an operations manual and being able to accurately value-engineer each house plan is no longer a luxury, but a necessity, he said. “You can use it to see how you can specifically react to changes in the market, the new products and segments.”
In addition, “networking is huge,” Pfeiffer said, and getting together with a group of builders or remodelers with similar businesses can reap great rewards.
In addition to spending time with other industry professionals at local home builders association meetings and events, builders can join NAHB’s 20 Clubs, which are groups of 15 to 20 members who have businesses that are alike but located in different markets across the country.
“As you build your professional network and form business relationships, it’s great to have someone to bounce ideas off of, and as you join as a group to discuss issues, this can be extremely productive and it cuts down on research time,” Pfeiffer said. “It’ll make your job a whole lot easier because you won’t have to do all of it yourself.”
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