Beyond Bricks: Market Trends and Innovations in Home Building

Nick Czar, VP of Business Growth, presented “Beyond Bricks: Innovative Approaches to Boosting Sales and Margins in the New Housing Market” at the International Builders Show 2024. Dive into his insights in this article.

To see how far new home sales technology can go, we must take a look into the past and see how far we’ve come.

Does anyone remember using the Palm Pilot Palm M105 series at work back in the day? This device was so revolutionary at the time — you could take your entire Rolodex and put it in your pocket. If you had a friend with the same one, you could easily transfer contacts. Salespeople would use binders for registration cards; that’s how they tracked customers and completed follow-up processes. There were no fancy CRM systems or technology to store, manage, and track customer data.

Now think of the tools we have available to us today — from the CRM suites to the customer experience tools to the advanced data platforms to scale customer experiences and close more deals. Seeing how far we have come only makes us more bullish on the future and how far we can go in the next couple of decades.

Boosting new home sales and capitalizing on the current market means understanding current trends and new innovations in homebuilding. 

The current market trends

As the leading new home sales consultancy, New Home Star gets asked many questions from our home-building partners. When we have people call us for consulting questions and advice on how to navigate the current environment, we really hear three questions they ask. Here are those three questions and predictions on what’s to come, based on insights from the New Home Star Data and Analytics team. 

What’s going to happen with prices this year?

There are a number of elements influencing pricing dynamics this year:

• Election influence: The looming 2024 elections cast a shadow over pricing forecasts. Significant financial injections from two governmental parties means uncertainty rises and the market's equilibrium is likely disturbed. However, outside of the election, there are not many other concerns. Therefore, things are looking pretty good.
• National new vs. existing price spread: The premium consumers are willing to pay for new homes versus used homes has gone down significantly. While historical data reflects a substantial disparity, with premiums as high as 40%, the current landscape suggests a diminished premium, hovering around 10%. However, it’s important to note that such trends vary across localized markets.
• Wage growth and inflation: An analysis of wage growth versus the Consumer Price Index (CPI) — the best measure of inflation we have out there — yields intriguing insights. Contrary to recent trends, wage growth surpasses inflation, signaling a potential shift in purchasing power. This phenomenon may not be immediately apparent in consumer behavior, but we think a surge in consumer confidence could be on the horizon.

Considering the above factors, we can anticipate continued price escalations in 2024 — but the pace of ascent may decelerate as we progress toward the fourth quarter. Savvy market players may identify lucrative margin opportunities in the earlier half of the year.

What will the sales pace be this year?

Let's explore the factors shaping the sales landscape in 2024 and project the potential trajectory:

• Comparative analysis: The share of new homes of all single-family inventory sales has surged, now surpassing the 30% mark, a significant uptick from the historical average of 10%. They’re grabbing a huge sale of the available market out there. 
• Market dynamics: In 2021, we saw supply chain disruptions, leading to slower home completion times. The pace of completing homes now matches the velocity of initiating construction projects. This reduction in cycle times implies potential for expedited turnover and enhanced liquidity, enabling market participants to capitalize on opportunities more swiftly.
• Foot traffic indicators: A tangible indicator of market vigor is the foot traffic through lockboxes. Notably, there has been a 5% increase in foot traffic compared to the previous year, indicative of heightened interest and engagement from prospective buyers.

In light of these dynamics, in 2024 we’ll see an increase in home sales compared to the previous year. 

How will consumer affordability be impacted?

With the last frequently-asked question, we see a few trends directly impacting affordability:

• Global conflict: Foremost among the challenges is the existing global conflicts and the potential expansion of wars, which could bring on ripple effects across global business ecosystems. 
• Trend towards deglobalization: This exerts upward pressure on material pricing, a phenomenon with direct implications for consumer affordability. As costs escalate along the supply chain, these increases are often passed down to the end consumer — constraining affordability for prospective homebuyers.
• Labor shortage: In the realm of employment, the real estate industry faces a significant labor shortage, with an estimated ~500,000 jobs undersupplied. We need to hire more! The resulting strain on the existing workforce necessitates higher remuneration, thereby driving up labor costs. This upward pressure on labor pricing poses another potential challenge to consumer affordability, as these costs are ultimately reflected in housing prices. 
• Reductions in inflation and Federal Reserve interest rate cuts: However…despite these challenges, the Conference Board Measure of CEO Confidence believes there are potential factors that could alleviate affordability concerns. Reductions in inflation, coupled with anticipated Fed interest rate cuts, offer avenues for buoying consumer affordability. 

Housing market predictions are tough, but we expect affordability to decrease slightly in the first half of the year. The Federal Reserve interest rate cuts should come through and outweigh labor force and material costs. This should improve customer affordability and bolster sales team efforts as we get deeper into the year.

Finding new innovations in home building in 2024 

In today’s rapidly changing market, identifying innovations in home building will help your team find sustained growth and success. At New Home Star, we’ve honed a framework that has proven quite effective. It boosts communities that are thriving and also offers guidance for troubled asset communities, as it’s a good way to decipher where you can attack opportunities to boost sales and margins. 

The framework is elegant and simple: 

Traffic (T) x Conversion (C) = Sales (S) 

This sounds too simple, right? When you peel back the layers of the TxC=S formula, you find strategies your team can implement:

- Traffic variable: In dissecting the traffic variable, we identify areas where we have control and influence. Sales teams can directly control contribution to marketing efforts, ensuring targeted outreach and engagement. They can influence the approach to digital marketing strategies.

- Conversion variable: With the conversion variable, the sales team can control the Point of Sale (POS) interaction, as they’re the chief people in charge of the customer experience. They can influence how products are positioned within communities and submarkets to maximize the opportunity. 

The three core areas to focus on

Along with leveraging the above framework, there are three primary areas sales teams should focus on today to make the most of this market.

1. Practice customer-centricity: Who is your customer? This question forms the bedrock of customer-centricity. Dive deep into your target consumer profile: discover customer demographics, preferences, and pain points to tailor strategies to meet evolving needs effectively.
2. Nurture team culture: Without a cohesive team culture, achieving customer-centricity becomes an uphill battle. Cultivate an environment of collaboration, empathy, and accountability to empower employees to deliver outstanding service.
3. Harness technology for scale: Leveraging the right technology is important to scale both culture and innovations for sustained growth. From robust CRM systems to AI-driven analytics, technology serves as the backbone for streamlining operations.

Examples of the latest innovations in homebuilding opportunities 

The way you operated last week will not work this week. The need for new innovations in home building is the only constant in today’s thriving new home sales teams. 

Empowering your sales team to become effective traffic generators is key. Gone are the days of siloed sales and marketing efforts. By providing sales associates with a budget and scalable resources, they can proactively engage with targeted consumer groups in submarkets where they’re most active, driving lead generation and fostering meaningful connections.

Here are a few ways to take innovations in home building to the next level on your sales team: 

Customer segmentation guide: Don’t guess who your customers are and where they’re located. A home-building-specific customer segmentation guide is a game-changer for sales teams. Unlike generic segmentation guides from other industries, a tailored guide provides actionable insights and data that illuminate shifting consumer behaviors and preferences over time. We partnered with a builder in Florida, for example, and applied our customer segmentation guide, and it yielded remarkable results: with targeted marketing changes, they saw a 23% increase in sales within the first year.

Online concierge service: With 100% of home buyers now initiating their search online, an online concierge service is needed to optimize customer engagement. By seamlessly guiding potential buyers from initial contact to scheduling appointments with onsite agents, sales teams can deliver a superior customer experience and capitalize on every opportunity. Examine the channel all of your customers come from and deliver a top-notch, quality service. Failing to prioritize this aspect risks missing out on valuable sales opportunities.

Enable quarterly business plans with your sales team: Seeing Around Corners, a book by Rita Gunther McGrath, highlights the art of spotting inflection points in business, and from it, we can see the significance of proactive planning. As the book shares, "snow melts at the edges first," highlighting the importance of identifying inflection points at the periphery of the business. By embracing a forward-looking perspective and sharing proactive plans, like 90-day plans each quarter, sales teams can anticipate shifts in the market landscape and capitalize on emerging opportunities. We instituted this type of advanced planning with a partner in Texas and found segment communities were cannibalizing each other; the changes we made increased sales 32% in the first year just by understanding what was happening in the periphery of the business.

Prioritize SAMIs (sales associate marketing initiatives): SAMIs are cost-effective, impactful marketing endeavors at the community level, undertaken by sales agents to promote their local area. These initiatives include a range of activities, such as organizing community events, engaging with social media, offering incentives, or hosting contests. By focusing locally, SAMIs help attract additional foot traffic that might otherwise be missed.

The journey from the era of the Palm Pilot to the cutting-edge tools and strategies available today is a testament to the relentless march of innovations in home building. As we remember the days of binders and registration cards, we're reminded of the transformative power of technology and forward-thinking strategies in driving sales excellence. To navigate current market trends and challenges, embracing innovation opportunities is key.

Want to hear more about how New Home Star can help your team take innovation to the next level and capitalize on today’s market trends? Learn more here.