Post on 24-May-2015
Dedicated to improving home building since 1964.
Implications of the Soft Housing Market on Suppliers of Building
Products
CABA’s Internet Home Alliance Research Council Family Ecosystem Forum
October 30, 2007
Benton Harbor, MI
2
NAHB Research Center Overview
Lab Testing & Certification Products & installation processes
Quality Assurance Programs Market Research
Syndicated & custom research Qualitative & quantitative Applied & theoretical www.housing-commercialization-tools.com
Field Evaluations & Demonstrations Information Dissemination Through ToolBase.org
3
Completed June 2007
State-of-the-Art Lab & Market Research Facility
4
Recent Cycle of U.S. Housing Production
Sources: Census
Excess demand drove unsustainable new residential development
Why the excess demand? Low interest rates increased affordability Home value appreciation Aggressive lending tactics in sub-prime market
Market correction was expected to account for overproduction (400K to 600K units)
Not-so-soft landing Correction taking longer than expected—fears
of home value depreciation ??? Bottom out @ 1.2 million units in Q4 ’07
or Q1 ’08 ???
5
New Residential Housing Permits
Source: U.S. Census Bureau (through September 2007)
0
500
1,000
1,500
2,000
2,500
3,000
Perm
its X
1000
Single Family Multifamily Manufactured Shipments Total2000 2002 2003 2004 2005 20062001 2007
6
Total U.S. Construction Spending
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Jul-0
2
Nov-0
2
Mar
-03
Jul-0
3
Nov-0
3
Mar
-04
Jul-0
4
Nov-0
4
Mar
-05
Jul-0
5
Nov-0
5
Mar
-06
Jul-0
6
Nov-0
6
Mar
-07
Mill
ion
s o
f D
olla
rs
Nonresidential Residential Total Construction
Source: U.S. Census Bureau (through August 2007)
7
2007 Study: “Implications of the Soft Housing Market on Suppliers of
Building Products”
Objective: to gain understanding of the new industry environment
Changes in business and construction practices Changes in relationships with suppliers,
subcontractors, and homebuyers Changes in attitudes towards trends, such as energy
efficiency and “green building” Changes in drivers of product specification and
purchase
8
Study Methodology
“Discovery” phase through group discussions of 3 – 4 builders to understand scope of issues
Conducted by phone Custom & production Multi- and single-family Wide geographic representation
“Validation” phase through nationwide, representative survey of 320 builders
Results weighted by housing starts to achieve accurate picture of the market
9Source: NAHB Research Center, Inc.
How Builders Describe Their Local Market Conditions
19%
19%
27%
27%
37%
41%
59%
64%
0% 10% 20% 30% 40% 50% 60% 70%
About the Same as Last Year
Housing Market Crash
Getting Back to a Normal Market
Housing Bubble Has Burst
Housing Slump
Mild Downturn in Home Sales
Market Has Softened
A Buyer's Market
10Source: NAHB Research Center, Inc.
Areas Where Builders are Very Likely to Improve or Innovate
18%
22%
27%
27%
30%
32%
33%
34%
39%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Land Development and Planning
Market Research
Choice of Products and Materials
Managing Supplier Relationships
Constructing Homes
Designing Homes
Purchasing Products
Managing Subcontractors
Selling Homes
Share of respondents rating a 5 on a scale of 1 to 5
11
Areas Where Builders Are Very Likely to Improve or Innovate
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Land Development and Planning
Market Research
Choice Of Products and Materials
Managing Supplier Relationships
Constructing Homes
Designing Homes
Purchasing Products
Managing Subcontractors
Selling Homes
Custom Builders Production Builders
Share of respondents rating a 5 on a scale of 1 to 5
12
Areas Where Builders Are Very Likely to Improve or Innovate--Regions
0% 10% 20% 30% 40% 50% 60%
Market Research
Land Development
Managing Subcontractors
Managing Supplier Relationships
Choice Of Products And Materials
Designing Homes
Purchasing Products
Constructing Homes
Selling Homes
Northeast Midwest South West
Share of respondents rating a 5 on a scale of 1 to 5
13
Implications
Now is an outstanding time for a supplier to innovate—builders are more open to innovation West is most open, followed by the Midwest Selling homes is getting the most attention
Suppliers to production builders—consider approaches to help improve builder sales Customer-facing literature Supply attention-getting web content On-site demonstrations of products Referral programs
Suppliers to custom builders—consider… Opportunities to help builders better construct homes This segment may be best initial target for
new/innovative products—more open for enhancing their customer’s choice of alternatives
14Source: NAHB Research Center, Inc.
Attracting Buyers to Sales Offices
31%
41%
44%
49%
57%
58%
66%
69%
70%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Larger Sales Commissions
Design Centers for Sales Process
Co-Op Advertising With Suppliers
Focus On Specialty Markets
Educate Customers
Advertising or PR Campaign
Listen More To Customers
Make Website Better Sales Tool
Referrals From Past Customers
Share of respondents rating a 4 or 5 on a 5 point scale
15Source: NAHB Research Center, Inc.
Attracting Buyers to Sales Offices
0% 10% 20% 30% 40% 50% 60% 70% 80%
Larger Sales Commissions
Design Centers for Sales Process
Co-Op Advertising With Suppliers
Focus On Specialty Markets
Educate Customers
Advertising or PR Campaign
Listen More To Customers
Make Website Better Sales Tool
Referrals From Past Customers
Custom Production
Share of respondents rating a 4 or 5 on a 5 point scale
16
Implications
Production builders far more likely to use web to draw customers, use advertising
Custom builders more likely to focus on relationships with home buyers
Consider non-traditional ways to help builders: Generate referrals Provide content for web sites Generate web traffic Help builders create more effective, sales-
focused websites
17
18Source: NAHB Research Center, Inc.
Strategies to "Close the Sale"
16%
20%
21%
25%
19%
28%
22%
35%
35%
37%
44%
42%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Decreasing the Size of New Homes WeOffer
Lowering Our Home Prices
Offering More Upgrades as StandardFeatures
Offering More Incentives--Like FreeUpgrades or Larger Decorating Allowances
Allowing More Modifications of HomePlans
More Innovative Materials to Set OurselvesApart From Other Builders
Plan to Make Have Already Made
19Source: NAHB Research Center, Inc.
Benefits Most Likely to Persuade Builders to Purchase Innovative Products
21%
26%
27%
29%
32%
32%
32%
36%
36%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Allow Direct Purchases
More Stable Prices
Reduce Business Risk
Higher Quality, Fewer Defects
Reduce Construction Cycle Time
Reduce Labor Costs
Costs Less
Increase Curb Appeal
Better Value
Share of respondents rating a 5 on a 5 point scale
20Source: NAHB Research Center, Inc.
Benefits Most Likely to Persuade Builders to Purchase Innovative Products
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Allow Direct Purchases
More Stable Prices
Reduce Business Risk
Higher Quality, Fewer Defects
Reduce Construction Cycle Time
Reduce Labor Costs
Costs Less
Increase Curb Appeal
Better Value
Custom Production
Share of respondents rating a 5 on a 5 point scale
21Source: NAHB Research Center, Inc.
Builders More Likely to Pursue the Following Relative to Subcontractors
22%
36%
72%
73%
81%
86%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Subcontractor to Sell Upgrades to HomeBuyers
Subcontractor to Begin SupplyingMaterials
Look for New Subcontractors for BetterPricing
Look for New Subs for Improved Qualityor Reliability
Negotiate with Existing Subs for BetterPricing
Reduce Subcontractor Waste &Inefficiencies
Share of respondents rating a 4 or 5 on a 5 point scale
22Source: NAHB Research Center, Inc.
Builders More Likely to Pursue the Following Relative to Subcontractors
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Subcontractor to Sell Upgrades to HomeBuyers
Subcontractor to Begin SupplyingMaterials
Look for New Subcontractors for BetterPricing
Look for New Subs for Improved Qualityor Reliability
Negotiate with Existing Subs for BetterPricing
Reduce Subcontractor Waste &Inefficiencies
Northeast Midwest South West
Share of respondents rating a 4 or 5 on a 5 point scale
23
Implications
Capitalize on builder motivation to improve the efficiency and reliability of subcontractors.
May signal desire for products that: Are less prone to improper installation Reduce labor cost by decreasing skill or time for
installation Reduce a builder’s reliance on subcontractors
Greatest dissatisfaction with subcontractors in South (opportunity?)
24Source: NAHB Research Center, Inc.
Methods Builders Use to Evaluate New and Innovative Products and Materials
9%
29%
35%
36%
50%
50%
57%
59%
60%
60%
0% 10% 20% 30% 40% 50% 60% 70%
We avoid new technologies
Independent Reviews
Evaluate in one community first
Market research
Sales literature/distributor recommendations
Conduct our own small scale tests
Visit job site to see in use
Manufacturer's product support capabilities
Evaluate on one house first
Manufacturer's independent testing
Share of respondents rating a 4 or 5 on a 5 point scale
25Source: NAHB Research Center, Inc.
Methods Builders Use to Evaluate New and Innovative Products and Materials
0% 10% 20% 30% 40% 50% 60% 70%
We avoid new technologies
Independent Reviews
Evaluate in one community first
Market research
Sales literature/distributor recommendations
Conduct our own small scale tests
Visit other builders job sites
Manufacturer's product support capabilities
Evaluate on one house first
Manufacturer's independent testing
Custom Production
Share of respondents rating a 4 or 5 on a 5 point scale
26Source: NAHB Research Center, Inc.
Trends Becoming More Importantto Builders
24%
30%
31%
51%
58%
61%
70%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Modular Construction
Panelized Construction
Zero-Energy Homes
Green Building
Design for Aging in Place
Low Maintenance Homes
Energy Efficiency
Share of respondents rating a 4 or 5 on a 5 point scale
27
Implications
Major trends supported by Baby Boom generation Energy efficiency = low energy cost on
fixed incomes Low maintenance Design for aging in place
Green building finished 4th despite large amount of press it receives
28Source: NAHB Research Center, Inc.
Importance of "Green Building" Benefits in Builder Purchase Decisions
38%
49%
51%
57%
65%
66%
84%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Reduce Greenhouse Gases
Reduce Dependence on Foreign Oil
Reduce Water Usage
Improve the Environment
Improve Indoor Air Quality
Make the Home a Safer Place
Lower Energy Bills
Share of respondents rating a 4 or 5 on a 5 point scale
29
Importance of "Green Building" Benefits in Builder Purchase Decisions
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Reduce Greenhouse Gases
Reduce Dependence on Foreign Oil
Reduce Water Usage
Improve the Environment
Improve Indoor Air Quality
Make the Home a Safer Place
Lower Energy Bills
Custom Production
Share of respondents rating a 4 or 5 on a 5 point scale
30
Implications
Top tier response benefits accrue: Directly to occupants, In short time frame, and Are easily measured
Bottom tier responses benefits accrue: Indirectly to occupants In an uncertain time frame, and Are less easily measured
Custom builders far more likely to favor bottom tier benefits
31
Shifts in Home Builder Focus
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Investigate Niche Markets
Build More in Urban Developments
Purchasing Less Raw Land, or Selling OffDevelopment Land
Build More Condos and Multi-family Units
Focus More on Remodeling Projects
Build More Non-residential Buildings
Not Considered Decided Not To Do Plan To Do Have Already Done
Source: NAHB Research Center, Inc.
32Source: NAHB Research Center, Inc.
Shifts in Home Builder Operational Focus: Planning to, or Have Already Done
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Purchasing Less Raw Land, or Selling OffDevelopment Land
Build More Non-residential Buildings
Focus More on Remodeling Projects
Build More in Urban Developments
Build More Condos and Multi-family Units
Investigate Niche Markets
Custom Production
Share of respondents rating a 4 or 5 on a 5 point scale
33
Residential Improvements and Repairs Expenditures
Source: U.S. Department of Commerce
Recession
100,000
120,000
140,000
160,000
180,000
200,000
220,000
240,000
260,000
1997
-Q2
1997
-Q4
1998
-Q2
1998
-Q4
1999
-Q2
1999
-Q4
2000
-Q2
2000
-Q4
2001
-Q2
2001
-Q4
2002
-Q2
2002
-Q4
2003
-Q2
2003
-Q4
2004
-Q2
2004
-Q4
2005
-Q2
2005
-Q4
2006
-Q2
2006
-Q4
Mil
lio
ns
of
Do
lla
rs
Source: U.S. Census Bureau
34
Product Purchase and Specification Decisions of National and Regional Builders
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Home Architectural Design
Standard Features and Upgrades
Products and Materials Specs
Suppliers of Products and Materials
Brand or Manufacturer of Productsand Materials
Corporate Office Decision Split Between Corporate and Local Local Operations Decision
Source: NAHB Research Center, Inc.
35
Change in Size of New Single Family Homes
2005 2006 Change
Average SFD 2,382 2,420 +2%
SFD Starter 1,651 1,631 -1%
SFD Move-up 2,410 2,363 -2%
SFD Luxury 3,608 3,620 0%
Source: Annual Builder Practices Reports, NAHB Research Center, Inc.
36
Change in Distribution of New Single Family Homes by
Price-Point
2005 2006 Change
Starter 34.0% 31.9% -2%
Move-up 47.7% 46.5% -1%
Luxury 18.3% 21.6% +3%
Total 100% 100% 100%
Source: Annual Builder Practices Reports, NAHB Research Center, Inc.
37
Kitchen Countertop Material Usage in New SFD Homes
2005 2006 Change
Solid Surfacing 17% 13% -4%
Laminate 40% 36% -4%
Ceramic Tile 9% 4% -4%
Engineered stone 1% 3% +2%
Granite 31% 40% +9%
Other natural stone 1% 3% +2%
Source: Annual Builder Practices Reports, NAHB Research Center, Inc.
38
Exterior Finish Materials In New SFD Homes
2005 2006 Change
Brick 20.8% 21.2% +0.3%
Stone 5.7% 7.4% +1.6%
Stucco 24.2% 21.4% -2.8%
Vinyl 23.0% 22.7% -0.3%
Fiber Cement 14.4% 14.2% -0.2%
Source: Annual Builder Practices Reports, NAHB Research Center, Inc.
39
Share of New SFD Homes with Home Electronics Systems
2004 2005 2006
Intercom / Entrance Phone 5% 7% 5%
Video Entrance Phone 1% 1% 1%
Whole home automation 2% 3% 2%
Non-Monitored Security System 24% 24% 27%
Monitored Security System 20% 19% 21%
Lighting control system 2% 4% 2%
Communicating Thermostat 1% 1% 1%
Monitored fire / toxic gas alarm system 10% 12% 11%
Whole-house Audio System 8% 10% 10%
Whole-house Video Access 4% 4% 5%
Built-in Home Theater 5% 10% 6%
Source: Annual Builder Practices Reports, NAHB Research Center, Inc.
40
Starter Moveup Luxury
Intercom / Entrance Phone 2% 5% 12%
Video Entrance Phone 0% 1% 4%
Whole home automation 1% 1% 6%
Non-Monitored Security System 19% 31% 32%
Monitored Security System 10% 20% 36%
Lighting control system 1% 1% 6%
Communicating Thermostat 1% 1% 2%
Monitored fire / toxic gas alarm system 7% 9% 23%
Whole-house Audio System 5% 7% 27%
Whole-house Video Access 2% 2% 15%
Built-in Home Theater 1% 4% 15%
Source: Annual Builder Practices Reports, NAHB Research Center, Inc.
Share of New SFD Homes with Home Electronics Systems
41
Price per Square Foot for U.S. Homes by Category
2004 2005 2006
All SFD Homes $124 $135 $148
Starter $101 $104 $108
Moveup $114 $124 $134
Luxury $160 $182 $190
Source: Annual Builder Practices Reports, NAHB Research Center, Inc.
42
Shares of SFD Homes with Structured Wiring
2004 2005 2006
All SFD Homes 39% 42% 41%
Starter 31% 31% 25%
Moveup 38% 46% 46%
Luxury 54% 61% 58%
Source: Annual Builder Practices Reports, NAHB Research Center, Inc.
43
Going Forward…
“Soft Market” survey to be repeated in January, 2008
Results to be reported in educational seminar @ IBS 2008
Detailed data now available for 2007 study
Dedicated to improving home building since 1964.
Ed HudsonDirector, Market Research Division
NAHB Research Center400 Prince George’s Blvd Upper Marlboro, MD 20774
(toll-free) 800-638-8556 (fax) 301-430-6180
www.nahbrc.org