Each day new reports continue to surface sighting data that suggests the real estate market is beginning to rebound. I, like many others in the industry, try to read the signals to gain a better understanding of where the market is headed. Once the winds of change reveal themselves, the industry can chart a course for recovery.
One of the most critical things to watch is the state of existing home sales. In our area, we continue to see progress. It may be slow, but at least it is occurring. The inventory is decreasing and the average time homes are spending “on the market” has also gone down. These macroeconomic signs are beginning to breathe life into what was a market on life support.
Whether it is the low interest rates, affordability index, or outright great deals on real estate, people are beginning to feel comfortable with the current value. As the market begins to climb the mountain of recovery, there will now be new challenges and pitfalls to face.
More and more contractors and builders are on the brink of insolvency. The increase in work may actually be a curse instead of a blessing. When new home construction picks up, so does the need for working capital to fulfill the labor and material liabilities. In the process this uses up the cash on hand. Due to the rapid change in risk evaluation from lenders, it is almost impossible to get financing once the cash is used. In many cases this is putting the final nail in the coffin.
It will be prudent for anyone purchasing a product or service currently to seriously consider the long term health of the organizations they will be purchasing from. If the builder or contractor cannot finish the project or is not around to service the warranty, it will not do much good for the consumer. Many of these construction companies are privately held and currently show no signs of financial distress making it very hard for the consumer to be aware of any potential problems. My suggestion is to ask other people in the industry and also trade organizations they belong to in order to acquire good background knowledge on the company’s health.
The signs point to the beginning of a long and slow recovery, but this may just bring an end to many of the companies that have struggled thus far to stay alive. It is an era of great opportunity but also of increased risk for those who do not do some homework. I know our organization is optimistic about the future and will begin to navigate forward with a road map clearly marked to avoid these obstacles.
Thursday, April 23, 2009
Wednesday, January 28, 2009
Lessons Learned from the Decline in New Home Construction
Consumer’s motivation to buy is not always done with long term value in mind. The buying patterns of the consumer have been developed over time to not consider long term repercussions of a bad purchase. We have learned through purchasing more and more consumables (i.e. food, paper products, clothes, cell phones, etc…) that if a product does not perform to our expectations, we just choose a different brand next time. Our lifestyles have become more hectic and products of convenience are more available thus developing a consumer that is very seldom punished for poor decisions. A hard lesson is now being learned by many owners of newly constructed homes that large purchases need to be done with a different strategy.
If you buy paper products that do not perform, there is not much risk because the product was not that expensive to purchase. We make low-risk purchases on a daily basis, so our skills are not honed in on choosing more sophisticated products. When it comes time to make a much more sophisticated purchase like a car or home, some consumers apply the same principles as they would for simple buying decisions. They may not base their decisions on craftsmanship, history, reputation, quality, or experience and instead focus on getting a great deal. Oftentimes these great deals are too good to be true.
During the rapid growth of the new home market which occurred in the first half of this decade, I observed two disturbing trends. Buyers seemed to put aside rational buying practices and chose newly established construction companies or very large national builders to build their home. Choosing a new builder over an established one just doesn’t make sense to me in most situations.
I witnessed many new builders spring up during this period that were great marketers, but had little experience building homes or running a construction business. Not all of these builders failed; some chose good subcontractors to help them along the way and others were saved by patient homeowners. In the end, most of the builders that repeatedly sacrificed quality have all but vanished. This has left behind many disappointed homeowners with no support.
I hate to make a blanket statement that choosing a national builder was a bad idea, but it’s more that I would not have made that choice. These companies were in fact run by very seasoned business people. It’s not so much a matter that they didn’t know what they were doing, it was more of a matter of priorities. Along with high demand came a large potential for profit, so the bottom line often took precedence over fulfilling customer’s needs.
What’s worse, the marketing used by many national builders, as well as some of the local builders in our area, seemed to prey on the illogical consumer. The ad programs created a “buy now” mentality that clouded the judgment of many people. Perceptions that if one housing development sold out, the next would be much more expensive caused knee-jerk reactions. Waiting lists and lotteries were even held in some of the overheated markets. At face value, it may have been an accurate assessment to believe prices would rise if they waited. However, when the cloud of overzealous buying ended, the consumer has found that the value they received was much different.
What most consumers did not do was their homework. Like any big organization, national builders have set procedures across the country to keep control. In most cases, each division is not allowed to act independently. Therefore, they were not adjusting their specifications or using subjective reasoning when determining the products or craftsmanship that would be best in each different region. Mandates were given, such as getting three bids on each discipline, with the lowest bid usually being the basis for their decisions. If the contractor missed something or bid it incorrectly, it was the homeowner and trade partner that suffered and not the builder.
National builders tend to rely on their specifications and give no credence to whether the contractor or vendor can or will deliver on the specification. What made this even worse was that in a booming market, production moved quickly with missed specifications often going unrecognized. Due to a lack of knowledge and often access to the site, many customers moved into their homes without even realizing they didn’t really get what they had paid for. Project specifications do not normally affect the structural integrity of the home, but can still greatly influence the joy, livability, and value over time.
Now that the building industry has slowed down, I really hope some lessons have been learned. For the builder, I hope they all take this time as one to focus on rebuilding their companies to be ones that create high-quality homes that fulfill the needs of their customers. Even homes being built on a budget need to be built with solid building principles in mind. As for the consumer, I think we must also learn from this lesson. We must understand the consequences of making high-risk purchases on a whim. Our due diligence is importance not only to protect ourselves, but because that is what holds builders accountable.
As the new home market begins to work through and regain steam, I hope a league of builders will surface that not only have the required knowledge and experience, but also honesty and integrity.
If you buy paper products that do not perform, there is not much risk because the product was not that expensive to purchase. We make low-risk purchases on a daily basis, so our skills are not honed in on choosing more sophisticated products. When it comes time to make a much more sophisticated purchase like a car or home, some consumers apply the same principles as they would for simple buying decisions. They may not base their decisions on craftsmanship, history, reputation, quality, or experience and instead focus on getting a great deal. Oftentimes these great deals are too good to be true.
During the rapid growth of the new home market which occurred in the first half of this decade, I observed two disturbing trends. Buyers seemed to put aside rational buying practices and chose newly established construction companies or very large national builders to build their home. Choosing a new builder over an established one just doesn’t make sense to me in most situations.
I witnessed many new builders spring up during this period that were great marketers, but had little experience building homes or running a construction business. Not all of these builders failed; some chose good subcontractors to help them along the way and others were saved by patient homeowners. In the end, most of the builders that repeatedly sacrificed quality have all but vanished. This has left behind many disappointed homeowners with no support.
I hate to make a blanket statement that choosing a national builder was a bad idea, but it’s more that I would not have made that choice. These companies were in fact run by very seasoned business people. It’s not so much a matter that they didn’t know what they were doing, it was more of a matter of priorities. Along with high demand came a large potential for profit, so the bottom line often took precedence over fulfilling customer’s needs.
What’s worse, the marketing used by many national builders, as well as some of the local builders in our area, seemed to prey on the illogical consumer. The ad programs created a “buy now” mentality that clouded the judgment of many people. Perceptions that if one housing development sold out, the next would be much more expensive caused knee-jerk reactions. Waiting lists and lotteries were even held in some of the overheated markets. At face value, it may have been an accurate assessment to believe prices would rise if they waited. However, when the cloud of overzealous buying ended, the consumer has found that the value they received was much different.
What most consumers did not do was their homework. Like any big organization, national builders have set procedures across the country to keep control. In most cases, each division is not allowed to act independently. Therefore, they were not adjusting their specifications or using subjective reasoning when determining the products or craftsmanship that would be best in each different region. Mandates were given, such as getting three bids on each discipline, with the lowest bid usually being the basis for their decisions. If the contractor missed something or bid it incorrectly, it was the homeowner and trade partner that suffered and not the builder.
National builders tend to rely on their specifications and give no credence to whether the contractor or vendor can or will deliver on the specification. What made this even worse was that in a booming market, production moved quickly with missed specifications often going unrecognized. Due to a lack of knowledge and often access to the site, many customers moved into their homes without even realizing they didn’t really get what they had paid for. Project specifications do not normally affect the structural integrity of the home, but can still greatly influence the joy, livability, and value over time.
Now that the building industry has slowed down, I really hope some lessons have been learned. For the builder, I hope they all take this time as one to focus on rebuilding their companies to be ones that create high-quality homes that fulfill the needs of their customers. Even homes being built on a budget need to be built with solid building principles in mind. As for the consumer, I think we must also learn from this lesson. We must understand the consequences of making high-risk purchases on a whim. Our due diligence is importance not only to protect ourselves, but because that is what holds builders accountable.
As the new home market begins to work through and regain steam, I hope a league of builders will surface that not only have the required knowledge and experience, but also honesty and integrity.
Tuesday, September 23, 2008
Want to build a home? The time really is now!
Everyone loves a great deal. From finding a highly sought after item on sale to receiving better service without paying more, American consumers appreciate the value in getting more for less. Anyone buying a new home right now is getting a great value. Most material costs have risen dramatically over the last twelve months, yet the cost of a new home has either fallen or remained steady in most markets.
Commodity prices, shipping costs, energy costs, insurance premiums, and other cost drivers have risen in double digit fashion. In order to survive in the current market, efficiency has become the path to survival. New technologies must be embraced and properly executed. In many cases, this will improve the overall quality of the projects.
Specifications and building timelines have tightened dramatically as expectations for what is produced has climbed. The buildings being constructed today are more energy efficient, safer, and require less maintenance than any time in our country’s history. Yet, the cost of a newly constructed home is at its lowest level in half a decade.
Due to the prolonged new home market correction, a cleansing has occurred in the market place. The better builders, subcontractors, and tradespeople have survived. Therefore, now more than ever you have the best chance of having the best craftspeople working on your new home project. The project should go more smoothly at this time and should be constructed well above industry standards if a reputable builder is chosen for the job.
If the time works for you financially and logistically, there really isn’t a downside to building now. Waiting to build; now that’s where I see the risk. There are quite a few people out there planning to build once their homes sell. As the market turns, these homes will inevitably sell, and the demand for building new is going to rise at a rapid rate. As the demand grows, the pricing should finally grow to account for the increased costs that have been building over the last couple years.
The level of quality will also not be where it is now. As I mentioned, the best of the best in the trades are working right now. As demand grows, the less experienced and lower quality tradespeople will be added back into the mix.
In terms of value, it really is a great time to build a home!
Commodity prices, shipping costs, energy costs, insurance premiums, and other cost drivers have risen in double digit fashion. In order to survive in the current market, efficiency has become the path to survival. New technologies must be embraced and properly executed. In many cases, this will improve the overall quality of the projects.
Specifications and building timelines have tightened dramatically as expectations for what is produced has climbed. The buildings being constructed today are more energy efficient, safer, and require less maintenance than any time in our country’s history. Yet, the cost of a newly constructed home is at its lowest level in half a decade.
Due to the prolonged new home market correction, a cleansing has occurred in the market place. The better builders, subcontractors, and tradespeople have survived. Therefore, now more than ever you have the best chance of having the best craftspeople working on your new home project. The project should go more smoothly at this time and should be constructed well above industry standards if a reputable builder is chosen for the job.
If the time works for you financially and logistically, there really isn’t a downside to building now. Waiting to build; now that’s where I see the risk. There are quite a few people out there planning to build once their homes sell. As the market turns, these homes will inevitably sell, and the demand for building new is going to rise at a rapid rate. As the demand grows, the pricing should finally grow to account for the increased costs that have been building over the last couple years.
The level of quality will also not be where it is now. As I mentioned, the best of the best in the trades are working right now. As demand grows, the less experienced and lower quality tradespeople will be added back into the mix.
In terms of value, it really is a great time to build a home!
Thursday, April 3, 2008
What I Learned on my Spring Vacation...
I am just trying to decompress from my trip home from Austin, Texas. I was away on Easter break with my three sons and wife. Like most passionate construction professionals, I am always intrigued to see how our building practices in Southeastern Wisconsin compare to other areas of the country.
We were fortunate to stay in a nice development built by a leading national builder. It is about two to three years old in what is known as Texas Hill Country, just on the shores of Lake Travis. The mixed use community consisted of multi-unit condos, cottages, and million dollar estates. Overall, my first impression was positive as we drove through the luxurious complex. It was obvious that the designs were put together by excellent planners and architects. Everything from flow patterns and colors to the natural landscaping all worked together to create a true Texas feel.
The developers obviously had great expectations with planned kayak marinas, a camping area, numerous walking and hiking trails, and other amenities. Most were started, but it appears that as sales slowed, so did the capital expenditures needed to complete these projects. Most will not suffer from neglect, but it brought into question when they will ever get completed per the original lofty plans. I also caught glimpses of this in the construction of the condo type units.
I viewed a number of buildings in various forms of construction. It was not that the structural integrity of the buildings was compromised, but more the fit and finish. For instance, the decks were built of high-end composite decking. However, the floor joists were not level and a hump lifted the deck by 3/8 of an inch or more. This difference was just short of creating a tripping hazard. The pre-manufactured box cabinets in our master bath had poorly done miters which left gaps at the base. The poorly executed caulking left infiltration points for ants and other insects in many areas. So while my breath was taken away by the woodwork, granite, and furnishings, the longer I stayed, the more it felt like something was lacking.
As the current downturn in the housing economy persists, I hope the consumer educates themselves and learns about the difference between just doing the job to the minimum versus really following through on the details. Even with licensed contractor requirements or required inspections, it will still always be the general contractor’s responsibility to insist on perfection.
I truly believe that the contractors with a dedication to building a flawless product will be the ones that endure through the current dip in our economy.
I have heard that many contractors in our area have been choosing to switch subcontractors in an effort to save money. We all know you most always get what you pay for and this has had an effect on the overall quality of the homes being built. In order to build a home that will yield homeowner satisfaction for years to come, contractors cannot compromise quality through the building process. Following these principles will also help to ensure that the value of the homes appreciate over time.
We were fortunate to stay in a nice development built by a leading national builder. It is about two to three years old in what is known as Texas Hill Country, just on the shores of Lake Travis. The mixed use community consisted of multi-unit condos, cottages, and million dollar estates. Overall, my first impression was positive as we drove through the luxurious complex. It was obvious that the designs were put together by excellent planners and architects. Everything from flow patterns and colors to the natural landscaping all worked together to create a true Texas feel.
The developers obviously had great expectations with planned kayak marinas, a camping area, numerous walking and hiking trails, and other amenities. Most were started, but it appears that as sales slowed, so did the capital expenditures needed to complete these projects. Most will not suffer from neglect, but it brought into question when they will ever get completed per the original lofty plans. I also caught glimpses of this in the construction of the condo type units.
I viewed a number of buildings in various forms of construction. It was not that the structural integrity of the buildings was compromised, but more the fit and finish. For instance, the decks were built of high-end composite decking. However, the floor joists were not level and a hump lifted the deck by 3/8 of an inch or more. This difference was just short of creating a tripping hazard. The pre-manufactured box cabinets in our master bath had poorly done miters which left gaps at the base. The poorly executed caulking left infiltration points for ants and other insects in many areas. So while my breath was taken away by the woodwork, granite, and furnishings, the longer I stayed, the more it felt like something was lacking.
As the current downturn in the housing economy persists, I hope the consumer educates themselves and learns about the difference between just doing the job to the minimum versus really following through on the details. Even with licensed contractor requirements or required inspections, it will still always be the general contractor’s responsibility to insist on perfection.
I truly believe that the contractors with a dedication to building a flawless product will be the ones that endure through the current dip in our economy.
I have heard that many contractors in our area have been choosing to switch subcontractors in an effort to save money. We all know you most always get what you pay for and this has had an effect on the overall quality of the homes being built. In order to build a home that will yield homeowner satisfaction for years to come, contractors cannot compromise quality through the building process. Following these principles will also help to ensure that the value of the homes appreciate over time.
Friday, February 8, 2008
Concrete Garage Floor Maintenance in Cold Climates
Wednesday’s record snowfall here in southeastern Wisconsin is just adding to the weather challenges we have faced this winter. The January Tornado, sub zero temperature runs, and the copious amounts of snow and ice have been trying for everyone in this region. Like most people we just want to survive the winter and make it to spring. When we get to spring it has become ritual to inspect the yard, trees, home exterior, garage and driveway to see what effects Mother Nature’s fury has dealt. One area most people are disappointed in is the state in which their concrete work is in.
Our municipalities have been very successful in maintaining safe roadways. The way they did this was to attack the snow and ice with different chemical de-icing products. The most aggressive products are used when the temperature gets below 20 degrees Fahrenheit. These products are very corrosive to concrete and have already started to cause damage to area bridges and over passes. Residential concrete flatwork is susceptible to this same corrosive chemical damage.
When you pull your vehicle into your garage and the snow melt drops off of your car it can do extreme damage to your concrete garage floor. The tiny pores in the concrete act as a tunnel to allow the water-chemical mix to infiltrate the surface. The use of liquid magnesium and calcium chloride to de-ice the streets when the temperatures dove below twenty degrees increases the number of freeze thaw cycles the surface must contend. This, combined with the corrosive properties of the chemicals, create a damaging combination for concrete surfaces.
All of this is now complicated by the fact that due to a de-icing shortage the municipalities have gone to mixing sand with the solid forms of calcium chloride to help extend their supply. The combination will only cause even greater damage to concrete due to the abrasiveness of the sand. It is important for homeowners to be proactive and clean their garage floors and driveways whenever weather permits. This will help to decrease the delaminating effects of these chemicals. The maintenance with their concrete is no different than having to rake their roofs to alleviate ice damming issues. Most people can comprehend the importance of painting or staining wood to protect it from the elements. They even realize they should paint steel so it does not corrode. However, it seems hard for home owners to understand that concrete, as a building material, also needs to be protected. It needs to be sealed to stop the infiltration of chemicals such as deicing salts. If the floor is sealed per manufacturer’s recommendation and cleaned periodically it will keep its luster for years to come.
Our municipalities have been very successful in maintaining safe roadways. The way they did this was to attack the snow and ice with different chemical de-icing products. The most aggressive products are used when the temperature gets below 20 degrees Fahrenheit. These products are very corrosive to concrete and have already started to cause damage to area bridges and over passes. Residential concrete flatwork is susceptible to this same corrosive chemical damage.
When you pull your vehicle into your garage and the snow melt drops off of your car it can do extreme damage to your concrete garage floor. The tiny pores in the concrete act as a tunnel to allow the water-chemical mix to infiltrate the surface. The use of liquid magnesium and calcium chloride to de-ice the streets when the temperatures dove below twenty degrees increases the number of freeze thaw cycles the surface must contend. This, combined with the corrosive properties of the chemicals, create a damaging combination for concrete surfaces.
All of this is now complicated by the fact that due to a de-icing shortage the municipalities have gone to mixing sand with the solid forms of calcium chloride to help extend their supply. The combination will only cause even greater damage to concrete due to the abrasiveness of the sand. It is important for homeowners to be proactive and clean their garage floors and driveways whenever weather permits. This will help to decrease the delaminating effects of these chemicals. The maintenance with their concrete is no different than having to rake their roofs to alleviate ice damming issues. Most people can comprehend the importance of painting or staining wood to protect it from the elements. They even realize they should paint steel so it does not corrode. However, it seems hard for home owners to understand that concrete, as a building material, also needs to be protected. It needs to be sealed to stop the infiltration of chemicals such as deicing salts. If the floor is sealed per manufacturer’s recommendation and cleaned periodically it will keep its luster for years to come.
Wednesday, January 2, 2008
The Green Movement
2007 will be the year when people of every nation finally had a moment of enlightenment. The world figured out that the resources of this earth are finite and before we use them up as a society we have to change our ways. Each country is coming to grips with how they will cope with this realization. In the United States, part of what we plan on doing is to move to products and processes in our daily lives that are sustainable. Home construction and remodeling will play a significant role in this.
Even though we know this has to happen the economics of it will not bring about this giant idealistic change as quickly as most hope. In fact it will be done very slowly and take more time than anyone hoped or could foresee. Most of the new construction today already uses very sustainable practices and products. For instance our concrete construction company has been using fly ash, which is a recycled by product from coal fired power plants for decades as a replacement for cement in our concrete mix designs. The fly ash adds to the workability and strength of our concrete and is less costly. The economics for us work out.
On the other hand, we have used insulated concrete forms to construct above grade building envelopes in lieu of wood framing.
The green advantages include the following:
- Energy Savings
- Very Sound Proof
- Low Air Infiltration
- Materials Used Are Comprised Heavily Of Recycled Content
These all help to reduce our carbon footprint on the earth.
However, the product cost, use of lumber to hold the forms in place when pouring , and the additional labor involved to do the project right economically offsets those advantages. Until products such as these evolve to make economic sense and the comfort level of suppliers and professionals are raised, we will not take the strides necessary to meet our objectives as a world community.
It is going to be a long and difficult journey to change the direction we have been headed but there is no alternative. If we want to leave this planet exactly as it was when we where brought into this life we have to be leaders and not look the other way. The more people adapt and embrace new products such as the fly ash or ICF technologies, the more realistic a goal of the earth providing a sustainable environment for generations to come. I know our company is on board.
Tuesday, June 5, 2007
Does your builder use the best tradespeople?
One of the biggest secrets in the industry is that the builders do not actually build new homes. Over the years the craftsmanship and expertise of the old world builder has evolved to become a manager of tradespeople and new construction technologies. A builder provides you their affiliation with certain subcontractors and their management of the process to produce your new home. I would compare it to manufacturing and having the expertise to assimilate all of the components.
In decades past it was the great carpenters or masons that acted as the builders because they understood how to build a solid, but character-filled, home when those disciplines where the majority of the construction process. As new technologies and financing products became available the business acumen of the builder has meant more to the process and transcended the industry in lieu of the craftsperson. In today’s residential construction most of the expertise on how to construct the home lies in the tradespeople that construct it.
Like any human endeavor, there are only 10 to 20 percent who can truly excel at what they do. The rest are average or below. The bell curve theory holds true for trade people as well. There are only a few per trade that can consistently be counted on to perform the best work in their discipline. However, there are very few builders who use the best in each discipline to construct their homes. The builders that use many of the best tradespeople do have a great reputation and have created a distinct character about their homes when you walk into them. The builder that does not use the best trade people usually feels it would be too expensive to do so or they feel their customers will accept average workmanship.
You need to ask the builder to use the best. You probably know who they are or can find out by talking with other tradespeople and vendors in the industry. Why would you research the builder and get references for them, but not the actual contractors putting the home together? No matter what your budget or the complexity of your project, you do not want to short cut on how it is built. Builders that will not use the subcontractors that you request are usually trying to either preserve a current relationship or ensure that their profit margin does not erode. Be open to their reasoning for why they use a certain contractor, but use common sense and trust your heart when agreeing to concede your demand for a specific craftsperson. You may pay more in the end but the home and process will fulfill your dreams.
In decades past it was the great carpenters or masons that acted as the builders because they understood how to build a solid, but character-filled, home when those disciplines where the majority of the construction process. As new technologies and financing products became available the business acumen of the builder has meant more to the process and transcended the industry in lieu of the craftsperson. In today’s residential construction most of the expertise on how to construct the home lies in the tradespeople that construct it.
Like any human endeavor, there are only 10 to 20 percent who can truly excel at what they do. The rest are average or below. The bell curve theory holds true for trade people as well. There are only a few per trade that can consistently be counted on to perform the best work in their discipline. However, there are very few builders who use the best in each discipline to construct their homes. The builders that use many of the best tradespeople do have a great reputation and have created a distinct character about their homes when you walk into them. The builder that does not use the best trade people usually feels it would be too expensive to do so or they feel their customers will accept average workmanship.
You need to ask the builder to use the best. You probably know who they are or can find out by talking with other tradespeople and vendors in the industry. Why would you research the builder and get references for them, but not the actual contractors putting the home together? No matter what your budget or the complexity of your project, you do not want to short cut on how it is built. Builders that will not use the subcontractors that you request are usually trying to either preserve a current relationship or ensure that their profit margin does not erode. Be open to their reasoning for why they use a certain contractor, but use common sense and trust your heart when agreeing to concede your demand for a specific craftsperson. You may pay more in the end but the home and process will fulfill your dreams.
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