Crunch time: Builders get back to basics
REGION – Housing starts at the beginning of this year were down 28 percent from January 2007, according to the U.S. Census Bureau, forcing builders to work even harder for new clients.
Sean McCardel, of McCardel Construction in Traverse City, has been building homes for more than 10 years. He says since December 2005, the home building industry has been steady, but slow.
"Things are definitely a lot slower than they were two or three years ago. We're getting sales, but we're working twice as hard to get those customers."
McCardel says his company has taken a "back to basics" approach, working with clients to keep costs down without compromising the integrity of the home.
"Because of the tough economy, people don't have a lot of extra money to spend on luxuries. During our plan review process we go over wants versus needs. Do you really need the finished lower level, the in-floor heating, or the theater room?"
Along with competing with other builders for projects, companies say they are also up against the growing number of repossessed homes on the market. Last year, the Mortgage Bankers Association ranked Michigan second, just behind Mississippi, in the nation with almost nine percent of home loans more than 30 days delinquent.
"A lot of people are out looking for that great repo deal," says President Bill Clous of Eastwood Custom Homes. "Our company tries to put people into a new home for less or the same price as the foreclosure home with all new products."
Reacting to a drop in market demand, Eastwood Custom Homes has lowered its prices by 20 to 32 percent, starting at $55 per square foot. Clous says they are also following the trend of returning to a more basic approach to building. He says maintaining overall quality is always important, but removing features that are considered luxuries can save thousands.
"Recently a couple wanted to build a home and the original cost was $180,000. After doing some cost cutting of extras we were able to get the price down to $151,000-but at the same time keeping the quality of the build."
Another way that Eastwood is keeping the price down is with a standardized feature program. The company has several different models of homes, but uses the same windows and interior doors in the houses, so it can get a discount on quantity and pass those savings on to the client.
The no-nonsense approach appears to be working. Clous says Eastwood currently has 11 houses under construction. McCardel says his company usually builds about seven homes a year, and already has contracts for four new builds this year. He estimates that he is on pace to meet or exceed last year's sales.
McCardel thinks that, in the end, the market for new homes will outperform the repo market because the ability to customize a new home is very attractive to buyers.
Residential builders aren't the only ones to feel the impact of a struggling real estate market; commercial building has also taken a significant hit. Project Manager Jim Lewis of Hallmark Construction says in his 12 years of business, this is the worse yet.
"Commercial building has come to a screeching halt. We usually have three jobs a week. Now we only have about four jobs a month."
And because there are so few jobs to bid on, Lewis says they have had to lower their prices to keep pace in a competitive market. Recently, Hallmark Construction landed a contract with TCAPS for renovations at Willow Hill Elementary and Traverse Heights. The company says because of these projects, it has not had to lay off any workers. However, Lewis says the company, which usually bids on in-state projects, is now looking at projects outside of Michigan. BN