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A Bigger Piece of a Smaller Pie
Frank Anton / Hanley Wood / February 2013
One way to protect yourself in a declining market is to get a bigger piece of a smaller pie. Unfortunately just the opposite happened to builders during the 2007-2012 downturn. Historically new homes each year account for about 15% of all homes sold. However, during the downturn that percentage dropped to about 7% or down by more than 50%. Talk about adding insult to injury.
There are some “good” reasons that new home sales lost share. Among them: the glut of bargain-priced REO units; the shortage of new home inventory; and builders, more or less by necessity, pulling back on their marketing spend. But there are some “bad” reasons, too, and they’re revealed in a survey of prospective home buyers funded by a consortium of the nation’s largest builders. The survey shows, among other things, that too many home buyers think old homes have more character, deliver more value and sit on bigger, nicely landscaped lots.
So, during the downturn what did far too many builders do? They dumbed down design; they stripped out features; and they reduced lot size. To make matters worse, almost all of them undersold or cut back on what survey respondents said were the advantages of buying a new home. Namely, energy efficiency, lower maintenance costs and the ability to customize the design and features of the house.
There’s not a one-to-one correlation between home sales and housing starts. But if builders, had been able to hold onto their 15% share of home sales, annual housing starts would’ve been 200,000 to 300,000 units greater during the downturn. And everybody, including some home buyers, would’ve been a little happier.
If you’d like a copy of the executive summary of the research, send me an email, email@example.com.
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