Predictions and strategy from a big builder
A new administration, rising interest rates, shifting demographics—it seems as if 2017 has just begun, yet we’re already seeing a change in the homebuilding landscape. Here are some trends we see for the coming year.
Expect strong markets to continue. California, Seattle, Las Vegas, and Phoenix all show healthy demand – no surprise there. Houston still has some storm clouds, but we see rays of sunshine coming through in 2017 with the stabilization of oil prices. The Washington, D.C.-Virginia area has seen positive job growth and could become a stronger market in 2017, especially if this positive trend continues with the new administration (Photo: Courtesy Pardee Homes).
Enrich lot inventory. Every homebuilder needs it, and it’s a top concern every year. Although we own and control all of the land and lots we need for 2017 and over 95 percent of those we need for 2018, in all of our markets we’ll continue to look for land opportunities that are in the best locations near major transportation corridors, good schools, and employment centers. Our land strategy in 2017 is to enrich inventory for deliveries through 2019 and prepare for 2020 and beyond. We plan to open 140 to 150 new communities between now and the end of 2018 and deliver new, innovative product designs to grow homebuilding deliveries and drive earnings.
Expect opportunities and challenges. We expect that single-family housing starts and permits will continue to build momentum in 2017, growing seven to ten percent from the prior year, as households are priced out of rental housing. However, labor shortages and regulatory constraints will continue to be an issue facing our industry in 2017. As a company, we will continue to work with our trades to consistently provide them with projects that start on schedule and pay on time.
The new administration has a pro-business agenda, which should stimulate growth for our industry and others. Job creation is one of the biggest drivers of new home demand, so if economic growth reaccelerates, homebuilders will be a big beneficiary. That said, the administration’s tougher stance on immigration might make an already challenging labor situation even more difficult.
Don’t forget about Boomers. Millennials will continue to contribute to the market, but let’s not forget about the Baby Boomers. There are more than 75 million Americans over the age of 55. With an average homeownership rate of more than 75 percent, according to the U.S. Census Bureau, and plans to spend almost $2 trillion in the next five years (according to Metrostudy), that’s a huge opportunity.
Focus on operational excellence. In 2017, we will continue to focus on price management and cost containment to improve margins, manage trade labor issues to improve cycle times and backlog conversion rates, and utilize targeted research analysis to drive high-demand product. Desirable standard features and prepackaged options will continue to make cycle times more efficient, while the long-term relationships we have with our trade partnerships will help command best pricing and “A” crews by enabling longer term visibility and planning. The result? Faster cycle times leading to higher backlog conversions and higher homebuilding gross margins.
In 2017, the homebuilding industry is poised for more growth because a number of factors are pulling in our direction: job creation, household formation, lack of supply and favorable demographics led by the Millennials and Baby Boomers. The takeaway? It’s going to be another year of continuing momentum for homebuilding.