By Dan White, Sales Leader - New Home Star
Many builders and markets are currently experiencing record low inventory levels. There are several reasons to explain why there are fewer homes on the market right now. One of the leading factors is the weather. Cold and snowy conditions across much of the country this winter made it harder to sell a house. People can’t see the landscaping or the condition of the roof, for instance, so many people tend to wait for spring before listing a home. It’s also an issue of individual market recovery. The recession made it difficult to sell homes for several years which created an environment with lots of homes but not enough buyers. The national trade base diminished accordingly, bringing new construction to a screeching halt. Now the market has swung the other way because more people are able to buy homes again, but fewer people are looking to sell. In addition to first-time homebuyers and retirees, there are also those who are recovering financially and are finally able to buy again. This factor tends to put a particular strain on the lower-priced housing market.
If potential home buyers can't find what they want in the used home market, a new home should have the advantage time after time. However, a majority of buyers must sell their existing home before buying your new home. The volume of used home sales far exceeds the volume of new home sales. Therefore, low existing new inventory also discourages home sellers since their potential choices for their next home is limited.
How does a builder combat this? The answer seems so simple, just start more inventory homes. But this is easier said than done, especially since builders are experiencing success and hitting sales goals with personalized, to-be-built homes in this strong seller's market. The ultimate gauge of the correct level of inventory is the level of buyer interest, ability, and willingness of those buyers to purchase a new home. In order to bring more reliable planning to this process, a workflow-leveling strategy should be implemented to start homes and release inventory consistently.
Some builders utilize a practice widely known as 'Even Flow' production. It is a strategy intended to reduce the variability in the workflow for trades in the process, thereby gaining production efficiencies and reliable cycle times. In practice, different operational definitions are used, yet few implement it under the strict definition of starting homes consistently time with the goal of starts equaling closings and not letting construction exceed production capabilities. The reason for this is that many builders do not have systems in place that tell them what their production capacity is and are not practiced in strategically and proactively starting inventory homes for future sales and closings.
The benefits of a regulated home start strategy are recognized on all fronts:
- Managing construction to work within their capacity allows for clean job sites, clear scopes of work, efficient scheduling, timely payments, and no back charges. This moves many trade crews directly from one house to the next, so the Project Manager can establish trusting trade relations and schedule his best crew onto new houses week after week.
- A clean job site is a sign of quality, a safe site for builders, and assists the sales team in creating emotional engagement and portraying a desirable home for prospective buyers.
- Customer satisfaction is improved with a more engaged sales and production team due to the eased backlog and fulfillment of expectations.
What are your builder’s sales goals one full build cycle from today? Considering that time of year, with your current home site availability, plan lineup, and pricing, is it realistic to hit those goals with only personalized to-be-built sales, or would buyers prefer inventory homes in that landscape? The result from forecasting your builder's inventory needs enables you to hit sales and closing goals, operating a production system within capacity, consistently and predictably improving starting homes, enhance margins, and increase your buyer pool from inventory. It also allows you to create a better buyer experience, reduce missed closings from scheduling conflicts or construction delays, and better calculate the cost of closings and revenue.
