A glut of excess housing and no significant rise in existing home sales have made the competition for new-home sales even tighter. As a result, big builders are serving up fewer products with fewer options while turning their attention to energy and cost savings for the end user.
For example, Wade Jurney Homes, which closed 215 homes in North Carolina's Triad (Greensboro/Winston-Salem/High Point) area, has trimmed the number of floor plans it offers from 250 to just 50. That plus some other engineering changes in turn helped Wade Jurney cut construction costs to $42.50 per square foot. The Greensboro-based company is building homes ranging in price from $90,000 to $180,000 with square footage ranging from 1,000 to 4,000 square feet, reports Builder, a sister publication.
"It's no secret that they are building fewer homes with fewer options," Brian Sento, senior vice president of national sales for 84 Lumber, tells ProSales. Builders that once were putting up 100-plus styles of homes per year have slashed the number of offerings. Sizes are dropping, too. Across the country, the median square footage of new homes fell from a peak of 2,300 square feet in the third quarter of 2006 to 2,100 square feet in the same period in 2009, according to the National Association of Home Builders (NAHB).
"The downturn has humbled everybody," says Fred Snyder, national accounts manager with Stock Building Supply. "But we didn't expect this humbling to be as long and as deep."
Big builders were among the folks said to be most humbled by the housing industry's downturn. But while the top 100 builders' share of the overall single-family and condominium construction market has dropped by five percentage points since 2006, the top 100 still accounted for nearly 39% of the entire homebuilding market, according to Builder magazine's authoritative Builder 100 report.
Most dealers say they don't bother pursuing big builders, but this group still bears watching for two reasons. First, many of the country's biggest builders are publicly held. As a result, many analysts believe they will be among the first to come out of the housing recession because they'll be able to tap the equity markets for funding rather than rely on still-cautious bank lenders for construction loans. That means they'll be building–and buying products–while more local players remain on the sidelines.
Second, because of both their ubiquity and their research work, what big builders do provides a benchmark that could influence smaller builders in the near future. For instance, based on what companies like KB Home are building, it's quite likely that framing packages after this housing recession will involve markedly less wood than did those of a few years ago.
The 'Wooden Tent.' While KB Home traditionally has served first-time buyers, during the housing boom it tried to expand through such measures as teaming with Martha Stewart on more upscale projects. But then sales turned south, and with it, KB changed.
Last year it launched the Open Series, a new, smaller set of homes. The line is called the Open Series, the company says, because the homes feature "flexible floor plans" and lots of "multi-use spaces." KB Home's public literature notes that customers want these amenities. What the literature doesn't say is that every wall KB leaves out in order to create open space also represents that many fewer sticks that it has to buy and nail into place.
The Open Series also uses prebuilt floors and panels on its new products and shrinks the size of its stairways and hallways in some cases. As a result, costs in some areas to build Open Series houses are as low as $35 per square foot, down from $55 a foot for previous house plans. And here's another result: Open Series houses account for half of the houses KB Home delivered in 2009. CEO Jeffrey Mezger predicts that share will rise in 2010.
Other builders design homes with far fewer gables and simpler roofs than before, reducing the need for complicated trusses. Interior spaces are designed in 8-foot increments, so entire sheets of drywall and OSB can be set into place without the need for cutting. Less waste, less production time.
Some detractors have derided such new homes as being little more than wooden tents, but there's plenty of evidence that today's builder can cut costs while still delivering quality. Last year, Big Builder profiled Meritage Homes as the company re-examined what it put into houses. "Out went 10-foot ceilings, two-story foyers, oversized windows, complicated HVAC systems, separate showers and tubs, and other architectural details and upgraded finishes," Big Builder editor Sarah Yaussi reported. "Vinyl became the new hardwood flooring, and laminate became the new granite countertop, so to speak." As an Arizona regional vice president for Meritage told the magazine: "Those elements look wonderful, but when you get down to it, you can have a nice-looking home without vaulted ceilings and 12-foot-tall glass." Meritage also reduced the cycle time on its homes by a month, cutting it to 120-150 days.
At Stock, Snyder has noted the shift.
"The astute builders have redesigned to hit a price point," he says. "It gets to a point where you have to get serious about how you run your business. You have to be more scientific in your approach."
Sento agrees. "The builder's No. 1 focus is to drive cost out," he says.
Delivering Lower Costs. Dealers are being recruited to help in that effort. Clark Ellis of FMI, a consultancy based in Raleigh, N.C., has helped put together a game plan for cost-cutting home builders. Part of the plan calls for builders to get a far better handle on exactly how many sticks are needed to build a house. The intent is to eliminate the need for the extra wood dealers add to a framing package under the (often correct) assumption that a construction crew won't use the right lengths of wood for the right jobs.
"If you ship it, it'll get used," Ellis tells ProSales. "You don't get calls from the framer saying there's too much wood. People will cut three feet off of a 14-foot length and throw the rest away."
Going beyond the takeoff to know exactly how many sticks are needed–and then ordering accordingly–might be good for the builder, but it means a smaller shipment for the dealer. In that case, change would take money out of a dealer's pocket. But there are other examples in which a better building process can reduce a dealer's costs, and thus help the builder as well. This is particularly true for making on-time and accurate deliveries, and fewer trips to the job site overall.
"For us, it's trying to work better and closer with customers," Sento explains. "Better efficiencies in getting product to the job site."
In some cases, 84 Lumber found builders had little clue about how many trips were made to job sites. "They lost touch," Sento says.
Scott Sedam, president of TrueNorth Development, a Northville, Mich.-based proponent of lean building technique, says that during one planning session in which a builder was struggling to cut pennies, a dealer rep showed how the firm could save $800 per house by eliminating such unneeded products as flex trim that cost $10.40 per foot but was hidden on the inside of a closet under the stairs.