This article was co-authored by Bill Gleason
Over the past two years, the homebuilding market has ping-ponged between hot and halted. It settled somewhere in the middle in 2022. Permits and starts were well below expectations but not as dire as the early days of the COVID-19 pandemic.
The good news is that we may have hit bottom, and it’s only uphill from here. The bad news? It could be a long, slow climb.
Lower inventory is driving up home prices. Meanwhile, high interest rates, inflation and economic uncertainty are lowering demand. First-time buyers and the middle market (i.e., buyers who need financing) are hesitant or unable to build.
Supply availability and cost are in constant flux, too. And just like in every other industry, labor is more expensive. But in construction, subcontractors can jump jobs in a day or two, switching sites for the highest price. That makes it harder for homebuilders to control costs and schedules.
Builders have responded by reducing speculation sites and offering more incentives. In some markets, builders reduced home prices and shrunk their sales teams, too. Will it be enough to ride out the storm?
Wait and see isn’t an option. Homebuilders need to pursue these strategic priorities to insulate against poor economic conditions and prepare for the next boom.
Industry strategies
1. Invest during the downturns
The housing market will continue to cycle through highs and lows. Builders that used the downturn driven by the COVID-19 pandemic to invest in innovation are seeing the payoff now. They have data about trends, not hunches.
Many created operational efficiencies to become nimbler and more responsive. Systems are integrated so they aren’t duplicating paperwork or tasks. Processes are seamless so nothing slips through the cracks or becomes a costly mistake. And the right people are focused on the right tasks, which is critical when good labor is hard to find.
Homebuilders should use slowdowns to look at their strategies, operations and technology stack. Start with the biggest pain points, whether that’s procurement, scheduling, receivables or sales. Invest in modernization today so that you can manage future market cycles more confidently.
2. Modernize and upskill sales
When the housing market is hot, sales teams can sit back and take orders. But in tougher times, they need to sharpen their sales and marketing skills. Now is a good time to retrain staff on proven sales processes, especially if your salesforce expanded rapidly.
Sales reps also need bigger war chests for marketing, including traffic data, sales materials and incentives. They need good data about who’s coming in the door, the ideal persona and who can afford the homes. They also need to understand what customers care about today. Being energy efficient was a differentiator a decade ago but it’s table stakes today.
Just as important, builders need to automate parts of the sales process so that they’re less reliant on the experience (or schedule) of one home counselor. From digital appointment scheduling to e-contracts, there are many ways to modernize the sales process.
Everyone is doing more with less. That doesn’t mean that the experience or the results have to be less. Use automation to support sales staff and improve the buying process.
3. Simplify the customer journey
This may seem redundant to the priority above, but it’s worth hammering home. Builders that make the sales process faster and easier will sell more houses.
Find ways to schedule people quickly once they express interest in a community. Create tools to help buyers research options or make selections. Customers shouldn’t have to sit across a sales desk to see how cabinet or flooring selections change their overall cost. Make it easier for salespeople to keep inventory up to date on websites and sales tools so that they’re talking to qualified prospects.
A home is a major, emotional purchase that requires dozens of decisions. When buyers are ready to buy, the sales process shouldn’t create roadblocks — it should remove them.
4. Strengthen financial management
We’re not picking on the sales function. Homebuilders need updated, tech-supported operations across the business to strengthen financial performance.
With clean and reliable data, builders can project costs, compare suppliers and track bids better. Cloud-based solutions allow managers to be in the field more often with the information that they need when they need it. Benchmarking and reporting help owners set goals and hold managers accountable.
Financial solutions should be tied to operational applications and data to that builders get an accurate view of the business and where it’s heading.
5. Focus on location, location, location
In every story, there are winners and losers. That’s true in this one, too. Not everyone is suffering to the same degree. Homebuilding is hot in some geographic areas, such as Texas, Arizona and the Carolinas. Builders in the luxury market or who build second and third homes have been less affected, too.
That means that homebuilders need to make smart decisions about land. Property acquisitions and relationships with landowners may affect profitability just as much as material and labor costs.
Builders also need accurate market data to make good decisions about how to use land. Analytics and modeling tools can help them design and test different land uses or tailor plans for the most-attractive markets.
6. Be curious and creative
The National Association of Home Builders encourages builders to know the rules but be creative and innovative with land. Keep an eye on building trends, even if they don’t fit neatly into today’s business model.
In some markets, multifamily units are more attractive due to land density. Or commercial spaces are being converted into residential units since more workers are working remotely. Modular or prefab construction may appeal to more eco-conscious buyers or help schedules stay intact.
Take note of buyer questions and requests so that you can spot emerging themes. The most successful firms are often the quickest to respond. Use data and curiosity to stay ahead and creatively address buyers’ needs.
How Wipfli can help
The economic conditions and related uncertainties facing homebuilders and the construction industry raise challenges that can threaten your business. Wipfli’s construction team can help guide you through those challenges and provide solutions to optimize your performance and prepare you for the future.
Contact us to learn how we can help.
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