Contrary to some early forecasts by leading housing economists, the U.S. housing market continued its downward slide through 2008. Facing a more uncertain future, home builders have begun to implement some dramatic changes in how they build and sell homes in order to remain competitive and profitable. To help keep the industry abreast of the changing environment for home building, the NAHB Research Center conducted a study in early 2008 called, “Implications of the Soft Housing Market for Builders, Suppliers, and Manufacturers.”

The 2008 Soft Market Study reveals builders are focusing on making business improvements, especially in their sales efforts. Builders have reduced home prices about as much as they can and have become more creative in luring potential homebuyers into sales offices to close the sale. For example, three-quarters of the builders surveyed have redesigned their homes to represent the best value among competitors, and about 70 percent are making their homes more energy efficient. The study reveals that the most popular home purchase incentives are free upgrades, and the most commonly offered upgrades are in the kitchen. These upgrades include appliances, countertops, and cabinets. The majority of builders are now paying closing costs and fees for new homebuyers, while just under half are providing assistance to buyers in selling their current homes. The study also reveals that home builders have become more flexible than ever, allowing buyers to specify modifications to home designs and material selection. The market downturn has also made now a great time for manufacturers to go directly to consumers to gain knowledge of their specific building product needs.

Study findings also reveal that home trade-in programs, used only by about 15 percent of home builders surveyed, are rated as one of the most effective programs for luring buyers back into the market. This process is similar to “trade-ins” in the sale of new automobiles, where the builder purchases the old home as part of the sales contract for the new home.

Looking to future business improvements, about 30 percent of home builders state they will adopt a green building program soon. Additionally, 18 percent said they will improve business performance monitoring; 17 percent said they would adopt a quality assurance program; and16 percent said they would undergo major cost cutting to improve their competitiveness.

Answers to important industry questions are also uncovered by this study. They include:

• How are relationships changing between builders, homebuyers, manufacturers, suppliers, and subcontractors?
• What business and technology improvements are builders using to reduce operating costs and increase sales performance?
• How do builder responses to the downturn vary by region and builder segment?
• What are the most popular manufacturer-sponsored programs for builders?
• What changes in home design and materials usage have taken place in response to the housing downturn?

Many builders, suppliers, and manufacturers of home building products have realized that we now face a new industry environment. To be successful in both the short- and long-term, the industry must do more than “wait out” the slowdown in sales. The findings of this study are helping bring light to opportunities for builders, suppliers, and manufacturers to persevere in the new environment so they stand to gain the most when the housing market rebounds.

The final report for this study, complete with an appendix with detailed data tables, is available for purchase through the NAHB Research Center’s online bookstore (www.nahbrc.org/bookstore) or by calling (800) 638-8556.

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