NAHB Kit Sends Builders Back to Basics in Cooling Market
With the current cooling of the nation’s housing market expected to persist into the middle of next year, NAHB has developed a comprehensive online toolkit geared to providing association members with information that will help them prosper in today’s changing business environment.
“A cooling housing market is no longer a threat lingering somewhere in the future,” said Bob Schultz, MIRM, founder and president of New Home Specialist. “Even national builders like KB Home and Toll Brothers are starting to see the effects,” he said, and “the good news is that you can succeed in a cooling market once you have a clear understanding of how the market works in times like these.”
“Sales are off, starts are down, interest rates are rising, inventories of unsold units and existing homes on the market are up, and cancellations are on the rise,” said NAHB President David Pressly. “This presents new business challenges for NAHB members, many of whom have never witnessed anything less than a relatively robust housing market.”
About 75% to 80% of today’s NAHB members were not around to experience the last previous housing downturn in 1990-91, and they can use the materials in the new “Back to Basics” kit to adjust their company’s operations and to identify areas were they need outside expertise.
The toolkit contains some 150 articles on issues that include: construction financing, financing tools to help sell homes, measuring and benchmarking financial and business performance, improving business profitability, market research, advertising, marketing campaigns, new home sales techniques, the Internet as an innovative sales tool and diversifying your business. Also in the kit are statistics from research by NAHB economists and U.S. government agencies.
The kit also gives members a step-by-step rundown of how to evaluate their company’s position in the marketplace and the many factors affecting it, investigate options, identify those that are most appropriate and develop a strategy for putting them into action. Resources in the kit will be expanded on an ongoing basis, and a feedback form in the kit provides the opportunity for members to make suggestions and ask questions.
“I think we have a lot to learn from the guys who weathered the early 1990s,” said Pat Latessa, of the The Galileo Group, custom builders in Northern Virginia. Latessa said that he has heard the war stories in meetings with other members of the Custom Builders Council at the Northern Virginia Building Industry Association, “and if other builders need advice on how to cope with change, it’s a great argument for keeping in touch with the local HBA,” he said.
“We know that the market never drops to zero,” Schultz says in an article (“Confusion in a Cooling Market”) that is included in “Back to Basics.” “What is occurring now is a process of market corrections. The market has been unsustainably hot, fueled by low interest rates, investors and an extreme sense of urgency because of quickly rising prices….The fact that the market is cooling now doesn’t mean it is turning into a bad market. It is simply returning to normal.”
Schultz says that for people who have only recently come into the new home sales profession and have known nothing but boom times, “it will be difficult for them to make the mental shift necessary to thrive in changing conditions. There are even sales trainers who have emerged in the last five to 10 years who have only known great markets. Many of them are teaching strategies that will not cut it in these transforming conditions.”
“As the market changes,” says Schultz, “you must identify which things you can and can’t control, and then learn how to improve on the things that you can control. You can’t control interest rates, but you can control people’s perception of interest rates. You can’t control what your competition does, but you can control what you do — presentation and sales skills, Follow-Through®, appointment-setting, how your models look, etc. You can’t control what the articles in the newspaper say, but you can control what you put in the newspaper. You can’t control the weather outside of your sales office, but you can control what kind of environment people experience when they come into contact with you.”
Schultz suggests several things that builders can do to succeed in the current market:
- Maintain a strong and thorough knowledge of the marketplace. Resale information that should be tracked on a monthly basis includes how many listings go unsold, how many close, the average sales price, the average sales price as a percent of the listed price and the average days a home stays on the market before it is sold.
- Look at trends and determine how many resale and investor sales are available and at what rate they are selling compared to normal market absorption in order to estimate how long it will take to sell your inventory. It is also important to note the Realtors® who are selling the existing homes, because if you get to know them they may be able to help sell some of your homes.
- Cut back your operating costs, looking at every aspect of overhead and consolidating in the areas where you can.
- Compare your prices with other selling prices in your marketplace. As interest rates increase, even gradually, and people’s buying power decreases, you may need to rework your product and downgrade the specs on some of your models. Also, “you may need to reposition your product to be more in line with current sales prices,” he says.
- Assure prospective buyers that your market is a strong market. “Always tell them that business is incredible,” says Schultz. “Don’t ever let them suspect that you may be struggling. Be a beacon of clarity and reassurance when everything else is confusing to them. In an extraordinary market, it is easy for ordinary salespeople to look like very good salespeople. But in an ordinary market, it takes hard work to be an extraordinary salesperson. As the market becomes more ordinary, many salespeople will get out of the business and go back to doing what they did before the housing boom. But those who keep a clear focus, stay informed about their marketplace and practice diligent follow-through will continue to succeed even in tough times.”
To read the entire article by Schultz, click here.
To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar.
For assistance, call the NAHB Member Service Center at 800-368-5242.