It’s that time of year again when economists and other experts start crystal balling where they think the beleaguered U.S. economy and its housing industry could be headed in the next two years.
Those projections, as often as not, are based on historical factors, such as household formation. So Builder scoured the stories it has published in its magazine and online this year to identify trends we believe might spill into 2012 and influence how builders adjust to compete profitably.
The sudden rush of overseas builders and developers entering the U.S. housing market in 2011 could continue next year, especially if economic conditions don’t stabilize. Recent arrivals have included Japan’s ubiquitous Sekisui House, which forged strategic alliances with Newland Real Estate Group in California and Miller & Smith in Virginia. Australia’s G.J. Gardner Homes, which already operates franchises in California, Colorado, and Indiana, had its expansionary eye on Texas, Massachusetts, and Tennessee. Sanyo Homes in Japan broke ground in Portland, Ore., on its first steel-framed earthquake-resistant house in the U.S. And Sumitomo Forestry is investing $100 million in America’s Pacific Northwest over the next few years, and is using a subsidiary, Australia-based Henley Properties, to buy land in that region for development and new-home construction.
America’s housing industry continues to be an arena for second acts. Irvine, Calif.-based Fieldstone Group of Companies took a two-year hiatus to clean up its balance sheet and land problems before it resumed building homes and developing land in 2011. Hearthside Homes spent 16 months in Chapter 11 before emerging with new private-equity financing that allowed Hearthside to buy land for the first time in six years and to start a new 356-unit community, Brightwater in Huntington Beach, Calif. (The emergence was short lived, because Hearthside’s financial backer pulled the plug in early November, firing Hearthside’s staff and shutting it down.) Name changes remain popular for old builders reinventing themselves: Americap Development Partners now goes by True Life Communities. The ownership of New Mexico’s Artistic Homes passed from father to son and, in the process, the company was renamed Palo Duro Homes.
5. SEARCHING FOR GROWTH PARTNERS
When it agreed last spring to be acquired by M/I Homes, San Antonio-based TriStone Homes, a three-year-old builder, determined it could expand faster by being part of a larger company. At a time when bank financing is still tough to come by, expansion-minded builders continue to cast wider nets to find partners willing to help them fund their growth. So California’s The New Home Company, only 18 months old at the time, last January sold part of itself to Canada’s Tricon Capital Group in Canada. Other builders are entering into joint-venture financing agreements with private-equity firms, such as Houston-based McGuyer Homebuilders’ agreement with Wheelock Street Capital, and Los Angeles-based Williams Homes’ “strategic affiliation” with the giant IHP Capital, which is providing Williams with “substantial additional capacity” to expand its home building and development operations.
On Nov. 1, Pennsylvania-based S&A Homeslaunched an interactive website whose features allow customers to share a specific community with their friends via Twitter, Facebook, or email; design elements of their home; tour the builder’s houses and communities; and chat with consultants seven days a week. The web is where more buyers begin their searches, and the online connection that builders make with prospects and homeowners has never been more critical to selling and referrals. That fact was reinforced when Zillow.com, the real-estate search engine with 22 million visitors per month, in June introduced a new function on its site that gives greater visibility to new homes that are available in markets around the country.
2. DEATH, TAXES, AND REGULATIONS
One of Builder’s online stories that elicited unusually heated reader response was the news last January that builders in Ohio were resisting new energy codes that they said could raise home prices by up to $2,500. One reader accused those builders of showing “the same institutional feudalism demonstrated by US auto makers [that] put them into bankruptcy.” But that same month, the California Building Industry Association raised fears that code revisions mandating zero-energy performance in new homes could kill affordable housing in the state. Builders are by nature regulation-averse: The NAHB has attempted to be its members’ bulwark in recent controversies over mandatory sprinkler installation, stormwater management, lead-paint removal, and fall protection.