If there is one thing that building industry pros are good
at, it is adjusting to the ebbs and flows of the cyclical nature of the housing
market. Due to a combination of rising home prices, higher interest rates, and
low inventory, the lengthy, post-recession housing rebound did soften
considerably in the last part of 2018.
However, it also remains to be seen if
this softening is merely another pause in a longer story, or if the housing
market is closer to the end of the current cycle. For now, most builders are
not waiting for the answer, and are already using a combination of financial
incentives, a more personal touch to guide homebuyers through the sales
process, and tapping the wonders of Artificial Intelligence (AI) to clear
existing inventory as soon as possible.
Long a standard tool in the builder’s marketing box, sales
incentives can vary from covering more closing costs to free upgrades and even
outright price cuts. According to recent national statistics, in the first
month of 2019, 23 percent of builders lowered their prices – including
incentives, but also outright price cuts – versus just four percent in the same
month of 2018. While this nearly six-fold increase in net pricing cuts to
buyers is certainly notable, it is still far less than the rate exceeding 40
percent back in 2010.
Buyers may also be choosing smaller units. According to
preliminary data for November 2018 from the U.S. Census Bureau, the median
price of a new home sold was $302,400, down seven percent from the previous
month, and falling nearly 12 percent year-over-year. At the same time,
seasonally adjusted sales were up nearly 17 percent from October, but fell
nearly eight percent since November 2017. Meanwhile, the average months of
supply for new homes edged down to 6.0 months versus 7.0 the month before, but
up sharply from 4.9 year-over-year.
A separate report from the Mortgage Bankers Association
(MBA) for January 2019 showed a strong, 29-percent sales rebound for seasonally
adjusted sales of new, single-family homes after two disappointing months to
the fastest pace since 2013. Although January applications for new home
mortgages were flat year-over-year, they rebounded by a sharp 43 percent from
December.
Certainly one major factor helping buyer demand has been a
steady decline in lending rates, which, according to Freddie Mac, were
currently trending around 4.4 percent in mid-February for a conventional,
30-year fixed-rate mortgage. While this average rate is still up sharply from
just below four percent a year ago, the nearly 60-basis point drop from
November 2018 can mean over $12,000 in extra purchasing power for that $300,000
home.
Today’s technology is also assisting builders to offer a
more personal touch throughout the sales process. Considering that a single- family
home start can take as long as 90 days from the date of deposit, anxious
homebuyers may be looking for reasons to cancel if they are not seeing physical
proof of their new home coming to fruition. That is where a “more communication
is always better” mindset can help keep sales on track, using a variety of
regular video-enabled emails on a regular basis. By educating the buyer from
the builder’s point of view, sales managers can also better manage expectations
through closing day.
While AI can certainly help with this ongoing communication,
it is becoming even more important when personalizing online advertising and
messages for new leads with services including Google, Facebook, Instagram, and
others. For example, Google’s new ‘responsive search ads’ apply inputs from
clients and then use machine learning to arrive at the most ‘perfect’ ad for an
individual. According to the experience of online marketing consultant Do You
Convert, this evolving technology can help lower costs-per- click by 18 percent,
and improve click-through rates by of to 46 percent.
On the existing home side, brokerage giant Keller Williams
recently launched its own proprietary AI system called Command. Intended to
replace other, off-the-shelf CRM competitors, the company analyzed the pros and
cons of other systems, and assembled a team of 27,000 people – many of them
agents – to create a solution that could be customized to each user. Later this
year, the brokerage plans to launch its own consumer-oriented app to compete
with Zillow.
In both cases, the idea is to win the race for a one-stop shop
where potential buyers can search for homes, mortgages, and other related
services without leaving the company’s branded garden. Those builders who
manage to harness today’s evolving technology without losing the personal touch
of a talented sales person will likely outperform their competitors.
