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Surviving the Recession

Posted in Industry News

Surviving the Recession

It’s been a little over two years since single-family housing starts and average home prices bottomed in 2009. With the market still working its way through this recession, many builders are still adapting practices, methods and materials in order to make it to the other side when the industry finally turns around.

The National Association of Home Builders (NAHB) conducted a survey earlier this year showing that builders expect new homes in 2015 to be both smaller and more efficient. Already, many builders are constructing smaller, less expensive homes with energy- efficient features to attract buyers.

“Homes are getting smaller; living rooms are vanishing and merging with other spaces. People are using more sustainable products. In the next couple of years, more homes will be built using engineered wood because it’s structurally sound and more affordable,” said Stephen Melman, the director of economic services for the NAHB. “It makes sense.”

This shift toward engineered wood has already begun as builders seek ways to cut costs and continue to offer quality homes. Frontera Homes in Cypress, Texas, is just one builder that has had to be flexible during the recession.

Frontera was created shortly before the market hit bottom, when founding partners Michael Jones and Mike Do saw a need for superior quality and more affordable homes in the first time homebuyers’ market.

In order to deliver on this mission during the downturn, Frontera had to strategically adapt. In addition to adjusting pricing margins and exploring new avenues of business, Frontera has also relied on engineered wood materials to survive and stay profitable since the downturn. “Demand has been lower over the past few years, and in order to compensate for that we have lowered pricing margins, and in some communities we have come away with larger volume for that,” said Michael Jones, the chief operating officer for Frontera.

“We’ve had to add more amenities and features to our homes and adjust to the lending market. Keeping up with the latest skills, techniques and knowledge is part of being a true professional, no matter the industry. It’s just being magnified now,” Jones said. “We try to stay updated on new technologies and how they can help us. We then educate our prospective buyers on what products we’re using and why we use them.”

One such product is LP® TechShield® Radiant Barrier Sheathing. This product can lower attic temperatures by as much as 30 degrees, saving Jones’s buyers up to 17 percent on monthly cooling costs.

“We’ve also started using LP® SmartSide® Siding,” Jones said. “It’s lighter than fiber cement, making for a quicker, easier install, and it’s not as brittle so the boards don’t break. Plus it comes in larger spans, meaning fewer pieces for us to order and fewer cuts on the job site.”

“We are constantly walking around and looking at the performance of our subcontractors and their efficiency, speed and quality,” Jones said. “Frontera spends more time on the site paying attention to details than sitting in the office.”

In addition to being flexible and looking for ways to reduce costs in new homes, Frontera has moved into remodels and even some commercial projects. But Frontera isn’t the only one branching out right now, as another builder, Roth Homes, says it has refocused its strategy from high-end custom homes to offering affordable “move up” homes.

“When the market dropped in 2009, it nearly put us out of business,” said Josh Edwards, principal manager for Roth Homes. “We were building on average 45 or more homes a year from 2000 to 2007 with 15 to 20 employees. In 2009, I could count the number of homes we built on one hand and still have fingers to spare.”

“We had to diversify because there was very little building going on. Initially we started doing remodels, additions, decks, restoration, anything. Then we studied the market, retooled our product, and placed ourselves in the few areas where new homes were still being built and sold,” Edwards said.

“We shifted our new home products to the $220,000 to $250,000 range. Our ability to custom design a home for someone under $250,000 gave us an edge. Now we’re doing better than we have in years since the downturn began.”

A family owned and operated business in Boise, Idaho, Roth Homes has been using competitively priced engineered wood LSL, LVL, I-joists and rim board to achieve affordability without sacrificing quality.

“We started using LP® SolidStart® Engineered Wood Products on our homes. All the framing components work so well together, and they are more cost effective than lumber products,” said Josh Edwards, principal manager for Roth Homes. “We don’t have any problems with our floors, which has a lot to do with LP SolidStart I-Joists. The products have never failed or had any issues; I never have callbacks, which saves us money.”

The engineered wood trend isn’t limited to the contiguous United States. Dawn Pacific, a contracting firm in Hawaii, has turned toward the residential sector to provide the necessary profit to survive during these times and has found cost and labor savings in OSB sub-flooring.

“With the downturn in the economy, the commercial side of our business took a hit. In order to keep up, we had to look into other avenues,” said Dean Delos Santos, project manager for Dawn Pacific. “During the downturn, I’ve had to find quality products that would help cut labor costs so my guys could be more effective on the job site.”

In an effort to reduce labor costs, Dawn Pacific decided to try an OSB sub-flooring product—LP® TopNotch® OSB Sub-Flooring with SmartGuard®—instead of the pressure treated plywood they had been using.

“The TopNotch with SmartGuard was easier to handle than the pressure treated plywood because it wasn’t as heavy. With plywood we would have to do extra handling, but not with OSB sub-flooring,” Delos Santos said. “The easy installation resulted in significant labor savings, which trimmed about half the time it would have taken us to install the plywood.”

In Hawaii, plywood is often pressure treated for termites, making it a heavier product than the pressure treated plywood typically used in the continental United States. Because LP TopNotch Sub-Flooring with SmartGuard is lighter than pressure treated plywood, Delos Santos was able to save on labor costs. These labor cost savings should not be expected on the mainland as LP TopNotch Sub-Flooring is slightly heavier than untreated plywood.

“We’re always open to any ideas, processes or high-quality materials like this OSB sub-flooring that can help us keep our costs down to stay competitive and win bids,” Delos Santos said.

As builders continue to seek new products and methods and strategically adjust to market conditions, the NAHB is forecasting an increase in single-family housing starts in 2012.

“Our forecasters at the NAHB believe that there’s pent-up demand for new homes,” Melman said. “Before the downturn, the ratio between home prices and median household income had gotten way beyond what could be sustained by those household incomes. There are still parts around the country that are over built, but many of the others have come back to normalcy on the price-income ratio. The newly launched NAHB/First American Improving Market Index reported a dozen communities, including Pittsburgh and New Orleans, with six months of improving data for home prices, employment and housing permits. ”

“The market is beginning to cure itself. That’s why our forecasts have gone up, but in absolute numbers it’s still going to take three to four years of those kinds of increases to bring the market close to where it was in the middle of the first decade.”

Along with these forecasts comes a change in expectations for new homes. The NAHB will be releasing their 2012 Consumer Preferences report at the International Builders’ Show in February. Builders, too, are reconsidering what the market’s “normal” really is. Engineered Wood will be conducting an online survey where you can tell us what you think about current industry trends and the future of the industry.

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