Wanted: Innovator to Disrupt Today’s Home Building Market
Jeff Meyers
AUSTIN – (By Richard Webner for Realty News Report) – Home prices have climbed while affordability has declined, and the homebuilding industry may need a significant disruptor to deliver housing that meets millennial demand, industry speakers said at a Texas builders conference.
Jeff Meyers, CEO of Hanley Wood/Meyers, told attendees at the Digital Transformation Summit (DCX) in Austin that despite rebounding somewhat after a difficult fourth quarter in 2018, the national homebuilding sector still faces major affordability and supply challenges.
Meyers said the single largest issue is that builders simply haven’t constructed enough homes during this economic recovery, which has become the longest in modern U.S. history. “We haven’t been the big recovery machine that we have been historically,” he said.
David Brown
Another key barrier is the shortage of affordable homes. Over recent years, home price growth and inflation have outpaced wage increases by nearly two to one in many markets, Meyers noted. Cities that historically saw modest annual gains of 2–3 percent are now seeing double-digit increases—Dallas surpassed 10 percent and Denver approached 20 percent in recent periods.
“We’ve out-priced the buyer in a lot of markets,” Meyers said. “Wages just have not gone up fast enough.”
The fourth quarter of 2018 was particularly volatile for homebuilding, he said, as mortgage rates rose toward 5 percent and economic indicators including U.S. retail sales, the S&P 500 and China’s GDP showed signs of weakness. That period produced year-over-year declines in several major U.S. housing markets.
Although the market has since recovered, Meyers described the rebound as modest rather than dramatic. Freddie Mac reported the 30-year fixed mortgage rate at about 4.14 percent last week, and while prices and activity have improved, many markets remain at average levels.
“It’s been a nice recovery, we’ve seen a lot of price increases, things like that, but it’s not been a spike by any means,” he said. “It’s more that a lot of these markets are just average.”
Peter Brumme
Meyers emphasized that millennials represent a major opportunity for homebuilders. Tired of rising rents, many in that generation want to move into quality homes, but affordability and product mix are barriers. He suggested the industry could benefit from a disruptive force—akin to Amazon, Airbnb or WeWork—to scale new approaches for building smaller, lower-cost homes more quickly. He pointed to German builders who have achieved 30-day construction timelines as an example of what’s possible.
“Our industry needs a disruptor,” Meyers said. “I think that will force us into a situation to allow things to really start accelerating.”
David Brown, senior vice president for Metrostudy in Plano, said the national market has been responding appropriately to the slowdown in the fourth quarter. Housing starts have eased as sales cooled, preventing the kind of inventory build-up that occurred in past cycles when the industry reacted more slowly.
Brown highlighted that finished vacant inventory—homes built but not yet sold or occupied—increased 14 percent in the first quarter. He called this measure a “canary in the coal mine,” because rising vacant inventory often signals growing competition among builders.
Peter Brumme, vice president and general manager of Builder’s Digital Experience in Austin, added that many buyers who prefer new homes ultimately purchase existing resale properties because the new-home shopping experience can be difficult and confusing.
Buyers today worry about trusting builders and finding clear, useful information. Confusing pricing and difficulty visualizing a future home create friction that makes buyers roughly 20 percent more likely to opt for a resale home, even when they originally preferred new construction, Brumme said.
“We’re losing money because of our customer experience,” Brumme said. He also noted that real estate agents sometimes guide clients toward resale homes because agents are more familiar with that market. The homebuilding industry must improve the experience for buyers and ensure Realtors understand how to sell new homes effectively.
