What Home Builders Can Learn from 2009
Most home builders are more than ready to put 2009 behind them. The mortgage crisis had a domino effect across the economy but really put home builders behind the 8-ball this past year.
There were some changes that we think are for the better such as the slow down of McMansions due to consumer demand lessening and hopefully that trend will continue, but for the most part there were many new challenges that both homeowners and home builders faced in 2009 that weren’t applicable earlier this decade.
Builder online highlighted their top 9 and we pulled these three as the most damaging. Do you agree?
Banks’ reluctance to loan money hit both builders and buyers of homes in 2009.
Banks pulled construction money from builders, effectively putting many private builders out of business unless they were able to find alternative sources of money from friends and family, private equity funds, or had personal funds squirreled away that they could tap. (Click here for strategies on avoiding a credit crisis.)
Again, this hit private builders harder than public builders, but the publics didn’t escape the credit crunch either. Many shut down their revolving lines of credit or lowered their balances when banks started charging more for the money and adding more requirements for access to the cash.
Weak Consumer Confidence
Uncertainty about the job market, falling home values, and worries that they couldn’t sell their own homes for any price–much less for what the paid for them–kept many consumers out of the housing market in 2009.
As the year wore on, there were some signs of improvement, as home prices seemed to bottom and stabilize. But builders have pronounced that stability to be fragile at best, saying that new declines in home prices or rises in mortgage rates could shatter that tenuous situation.
Foreclosures–and distressed sales–continued to rank as one of the biggest business challenges of the year in 2009 for builders and, unfortunately, are expected to be a plague in 2010 as well.
The numbers are sobering. In October, for example, more than 332,000, or one in every 385 housing units in the country, received some sort of foreclosure filing (default notices, scheduled auctions, and bank repossessions), according to California-based RealtyTrac. That figure, while down slightly from the previous month, was up nearly 19% from the same month in 2008.
The builders who could fight back did, by redesigning their homes or options to compete. They marketed the economic value of their new homes’ greater energy efficiency compared to existing houses. Many also focused on the entry-level market, where buyers could take advantage of the first-time buyer tax credit and didn’t have to worry about selling a current home.