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Homebuilding: Weak or Strong?

In the early days of the COVID-19 pandemic, the homebuilding industry remained strong, but in the past few months, we have been talking about an impending downturn. Has it happened yet or is it still on the horizon?

To identify the state of the homebuilding market, let’s start by looking at one metric and then I will give you my thoughts on what needs to happen next. The monthly BTIG/HomeSphere Homebuilder Survey seeks the perspective of approximately 50-100 small and mid-sized tract homebuilders nationally about sales, customer traffic, and pricing trends. It received 113 responses for the month of July. Here is what it found.

Only 17% of builders reported increased sales orders per community, while 60% saw a decline. Sales and traffic relative to expectations also continue to be poor despite builders readjusting business plans to lower expectations.

Another trend to watch is base prices are moving lower, which isn’t a great sign for the overall economy. 38% of builders lowered at least some base prices vs. 22% in June. 41% of builders increased sales incentives on at least some homes vs. 27% in June.

The survey also suggests the number of builders raising prices decreased in July, while the use of sales incentives pick up. Specifically, 26% of builders raised some, most, or all base prices in July from June, which is down from 45% last month, and 86% last July. Yikes. That is quite the shift in one year. Comparatively, 33% of builders increased “most/all” or “some” incentives vs. 19% last month and 8% last year.

Looking at this from a geographic standpoint, while weakness was widespread, the survey notes the weakest is the Pacific northwest and the strongest is the southeast.

All in all, we are seeing July was a weak month for homebuilders, according to this survey, with price cuts and incentives picking up sharply. New home demand continues to soften, and builders are beginning to now react more aggressively with price changes/sales incentives, as we enter a typically slower seasonal time of the year for homebuyers anyway.

Here at Constructech, we always say if there is a market downturn coming, now is the time to prepare by implementing technologies that can improve profit margins and heighten efficiency. Best to prepare for the storm before it happens. What are you doing to prepare your business for a potential downturn?

I also want to say if this downturn gets a little hard for the industry perhaps contractors, trades, and owners need some responsibility for how they have been responding and how this has left a very sour taste in the mouths of homebuyers—the very people you need to purchase your homes.

There has been a plethora of stories in the mainstream media reiterating frustrated homebuyers who have been dealing with builders who have been acting against the norm. So poorly, in fact—like spoiled children—because demand was so high, they had forsaken their key customers. This created an industry that was almost unrecognizable. Contractors and builders refused to complete jobs. They ignored customers and didn’t care if they received bad reviews. They failed to communicate because they recognized the cost to litigate for their clients was higher than if they left them in the lurch.

Isn’t that a punch in the face for paying customers? Some of the small ones have been ignored all together. Just like in manufacturing or in any business if the supply chain fails, if logistics fails, the whole system fails. The homebuilding industry has suffered declines in the past, but this is perhaps the first time it has been blatant, leaving customers at the altar even though these are the same ones that helped build the industry’s reputation.

This is a multi-generational business that might see a rapid decline if it doesn’t do something quickly to address the problem. This is a powerful industry that needs to regroup, refocus, and frankly rally to show the rest of the world why it’s one the hardest working of them all. It is time to retrain the trades and the staff and to turn to technology. Technology is not for everything, but the tech will certainly make a huge difference for sure. The real question now is do you believe technology needs to come into play?

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