Resale is a Leading Indicator of New Product Opportunities

Resale is a Leading Indicator of New Product Opportunities

Kevin Wilzbach - Monday, May 19, 2014 | Comments (0)

 

Resale is a Leading Indicator of New Product Opportunities . . . or

(Item 5 of the top 10 reasons why Builders MUST know resale)

As we continue to share with you the individual elements that make up The top 10 Reasons Why Builders Must Know Resale, it should be clear by now that New Home Marketing Services (NHMS) believes strongly in the power of resale to affect a residential builder’s success in the marketplace.  What we do as a company; the products we deliver; the services we offer, and many of the blogs we write are geared towards helping builders appreciate how resale can impact their business.  For that reason, we believe it is paramount for builders to know resale. 

The list of 10 items we identified as the critical reasons why builders need to know resale comes from years working with builders and brokers. In this blog, we’d like to explore item 5 – “Resale is a Leading Indicator of New Product Opportunities”.

At first glance, it may be easy to discount the argument based upon the blog title.  “I mean, really, how can housing stock that may be 5, 10, 20, or 30 years old, tell me anything about what I should build today?”  Actually, it can tell you quite a lot, particularly if you know how to dissect what’s happening in the resale space.

First, pay attention to what’s listing and selling in the resale space.  Conversely, pay attention to what’s not listing and/or not selling.  Then figure out what that information is telling you.  The beauty of resale housing stock data is that we can learn a lot about each listing.  Each piece of information is a different field that a builder can evaluate.  Some of the information that is normally available includes total room count, bathroom and bedroom counts, number of garages spaces, type of garage, days on market (DOM), and whether the home has a basement. If a builder takes the time to capture listing and selling data on a regular, ongoing basis, he or she can identify opportunity BASED ON FACT.

Now the builder can get really smart.  How are first floor masters trending?  What’s the absorption rate of ranches around my community?  Has there been an uptick in the number of homes selling with a finished basement?  Are buyers purchasing homes with fewer rooms but more square feet?  The list could go on and on.  And at the end of the day, it’s all about using this information to make a conscious decision about starting a spec home or adjusting your plan offerings to take advantage of demand.

A simple example can help bring this to light.  Let’s say a builder has been tracking ranch plan listings and sales.  The builder notices a couple of interesting facts.  First, in a 2.5 mile radius around a particular community, ranch listings are a larger piece of the overall market.  In the last 9 months, ranch sales as a percent of single family sales have increased from 21% to 24%.  Just as importantly, DOM for ranch plans has dropped 22% and months of supply for ranch homes has dropped to 4.8 months of supply.

With this information in hand, the builder steps back to reconsider a couple of things.  First, he or she decides that the next two spec starts will be ranches.  Options and list pricing will be different, but even those decisions are based on fact, drawn from actual sales information.  Second, the builder looks at his or her product offering and decides that the growing demand for ranches is a market opportunity.  The builder recognizes a growing demand for first floor living and decides to introduce a first floor master plan into the product offering for this community. 

Understanding resale allows builders to react quicker to changes in the market place.  Faster reaction time means better product placement and faster sales. Let the resale market help you make more informed product planning decisions and starts.  The end result is likely faster turns with better gross margins.