Builder Partnerships has grown to more than 550 builders, 75 manufacturers and two dozen service providers since our founding in 2005, and I want to thank our manufacturer partners in particular for your support during the lean years.
We now represent more than 65,000 annual home sales, and our membership is dominated by the hard-to-reach Mid-Tier Builders. These builders average approximately 50-3,000 homes annually. We have excellent relationships with these builders, and I want to share some of what we're learning directly with you.
Impact of Economic Conditions
Last fall the national housing statistics reversed course and began to deteriorate again, and most of the Mid-Tier Builders saw a softening of their traffic and sales. A number of them were concerned that they had raised prices too fast with almost 75% of the builders raising prices as much as 10% with an average of about 8%. Their price increases were adequate to cover their cost increases and contribute to some increase in gross profits. Still, the slowdown in the fall was welcome by most of the builders since the labor shortage had extended their construction schedules hindering their ability to deliver homes.
Increasing Sales and Planned Price Increases throughout the First Quarter
The fall slowdown continued through the first quarter of this year, which has been blamed on the severe and extended winter weather. However, the news from our Mid-Tier Builders (through surveys, builder groups, and webinars) is the first quarter was fairly strong, especially considering the challenges faced.
- January was soft with only 32% of our surveyed builders showing increases over their budgeted sales, 40% on budget and 28% below
- In February, 21% of the builders reported below budget sales, while 38% reported above anticipated volume and 24% on target
- In March, only 10% of builder reported soft sales and over two-thirds had stronger than anticipated sales.
- April appears to have been even stronger with 9% of the builders showing slack sales and 70% with stronger sales than budgeted
With regards to sales price increases:
- Less than 10% of the builders were not planning to increase their prices
- Two-thirds were planning on a 1-to-5% increase
- 25% are planning on price increases of 5% to 15%
- Only 17.5% of the builders decided to reduce or not to raise their prices
- Nearly 30% revised their pricing increase plans up
Mid-tier Builders Experiencing a Strong Market
I believe the housing industry is a lot stronger than the national statistics show, especially for Mid-Tier Builders. The large public builders and the small-volume builders may have experienced a weak first quarter, which could impact their annual closings for 2014. However, our builders appear to have had rather strong sales activity during the first quarter and appear to be on target or above for 2014 budgeted closings.
A Look Forward
As far as 2015 is concerned, 70% of our builders plan to have bigger increases in their number of communities than in 2014. This is due to the lead time for land development and the availability of A&D lending, which is just now beginning to loosen up. Because of the current land constraint our builders are increasing pricing so they can maintain their land inventory during 2014.
