From file "020_R1_PSs" entitled "PWbigbldr.qxd" page 01
From file "020_R1_PSs" entitled "PWbigbldr.qxd" page 01

When the Department of Commerce reported that housing starts in January rose to their highest annualized rate in 21 years, those estimates provided more ammunition to builders and industry watchers who are steadfast in their conviction that demand will stay strong throughout 2005. “There's no reason to believe housing cannot have another record year,” Richard Yamarone, chief economist at New York-based Argus Research Corp., told Bloomberg News after Commerce released data that showed starts in January hit an estimated 2.159 million units, 11.6 percent higher than the same month in 2004. Building permits, a harbinger for future construction activity, rose in January by 6.8 percent over January 2004 to 1.971 million units, their highest level since last May.

The past is definitely prologue for many large builders whose companies anticipate sustained growth after reporting solid gains in 2004. Don Tomnitz, CEO of Arlington, Texas–based D.R. Horton, predicts that 2005 will be the year his company becomes the first builder to crack the 50,000 mark in units delivered. Tim Eller, CEO of Dallas-based Centex Corp., also sees good days ahead: “Centex will continue to achieve strong results, even in an environment of incrementally higher mortgage rates.”

Eller's caveat is worth noting, as many factors—unemployment, interest rates, consumer debt, environmental protection, and immigration—can cause the housing market to veer off, unexpectedly, in all kinds of directions. In that regard, pro dealers will be better prepared for any sudden market shifts if they keep their eyes trained on key dynamics that are impacting what gets built, where, and for which buyers, to a far greater extent than any quarter-point interest rate hike the Federal Reserve imposes:

Active adult is everywhere. In 2011, baby boomers, 76 million strong, will start hitting retirement age at a rate of 11,500 per day for the proceeding 18 years. Nearly every major home builder is adjusting its product mix to appeal to retiring boomers who might be looking to purchase a new home. There were 377 builders involved in age-qualified communities in 2004, compared to 102 in 1995, according to the National Directory of Lifestyle Communities, a database of more than 1,250 active-adult communities in 44 states compiled by Parks Development Consulting in Scottsdale, Ariz. The directory also shows that builders started 99 new active-adult communities last year alone, compared to 15 in 1995.

Still, most builders aren't sure yet what these customers will want in their dotage. “Until now, we've been selling to the Eisenhower generation, and I don't think anyone has an understanding into [aging boomers'] buying habits yet,” says Scott Glauf, Centex's vice president of strategic marketing. For instance, the conventional wisdom that presumes retirees down-size when they move is being upstaged, in some markets, by growing demand among new retirees for houses with more rooms to accommodate offices or visiting relatives. “Active adult isn't formula-driven,” says David Schreiner, vice president of active adult business development for Bloomfield Hills, Mich.–based Pulte Homes, the industry leader in this sector. “You have to position yourself with each community.”

Indeed, demand for age-qualified homes is expanding well beyond the confines of traditional markets in Florida, Arizona, and California. Parks' data show that the number of age-qualified communities in non-Sunbelt areas has been increasing, since 1995, at an annual rate of 16 percent, and last year accounted for 74 percent of active-adult communities started. “The active-adult population has been ignored for new-home construction for a long time,” says Steve Pol, president of D.R. Horton's Minnesota division, which in the past two years has opened two age-qualified communities.

Dealers that want to claim their fair share of this market sector need to stay on top of changing lifestyles and tastes of their clients' older customers, and be ready to consistently adjust their product mixes accordingly.

Strengthening the supply chain. As big builders expand, their production hinges on efficient supply chain management. But that management can be difficult when labor is in short supply. The Bureau of Labor Statistics projects at least 1 million construction jobs will need to be created between 2002 and 2012, although some industry observers assert the actual need could be double that total. The current labor shortage would be far worse were it not for Hispanic laborers, who account for 60 percent to 90 percent of the construction workforce in some states.

Also, more big builders are managing their supply chains by focusing on consolidating their purchasing, automating the scheduling and tracking of projects, and developing computerized systems through which they can share information within their organizations and with suppliers. “We're trying to break through the paradigm that has the builder telling the trade when to jump,” says Ed Wohlwender, senior vice president of operations support for TOUSA Homes in Hollywood, Fla. TOUSA expects to increase its closings by 30 percent in 2005 to 9,600 units, and is among a growing number of builders with automated procedures to evaluate the performance of their employees and trade partners. Houston-based David Weekley Homes now asks 500 of its employees each quarter to grade more than 100 suppliers and shares that information with those suppliers to encourage them to resolve problems directly with the grader or their contractors and upstream distributors.

This intensifying scrutiny could force more pro dealers to take a second look at their own selling and customer service, and to refine how they monitor the reliability and quality control of subs, fabricators, and wholesalers that they use to provide materials, delivery, and installation to their builder-customers.