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Cutting costs Orlando’s busiest builders find ways to keep selling in a down housing market
December 10th, 2007
Orlando’s top production home builders are facing a significant drop in home sales this year. As a result, they’re eliminating some bells and whistles so they can offer lower prices.
The problems originated with the white-hot housing boom of 2004 and 2005, which saw investors snap up homes intending to flip them for a tidy profit. That left an artificial shortage of housing, which rapidly drove up prices to record levels.
Now, with a lot of starry-eyed investors facing foreclosure, there’s a glut of homes back on the market. But with the median home price in
So in an effort to attract buyers, local home builders now are offering lower prices.
In order to still make a profit, those builders must cut costs -- something they’re trying to do by operating leaner, building smaller homes and offering fewer standard amenities.
However, some industry experts believe it would be better to keep prices stable by slowing production.
"It will be good for the whole industry if they just build less and try to protect their profit margins," says Maik Aagaard, managing principal of the
Less bells and whistles
For now, though, local home builders say they must continue to crank out new houses.
And for those homes to sell, the price has to be right, says Jim Bagley, president of Orlando-based Park Square Homes, which ranked No. 2 among Orlando Business Journal’s largest production builders with 698 home sales in 2006 for a total of $401 million last year.
The firm has begun shifting some of its inventory to a more affordable price. For example, in its Summerbrooke subdivision on U.S. Highway 441 in
To make that financially feasible, Bagley says Park Square eliminated some of the original standard amenities by making cabinets smaller, reducing tile space to just the wet areas and switching from tiled roofs to shingles.
"The original plan was very beautiful, but the market was looking for a product priced under $250,000," Bagley says. "We went to things that still make the house look appealing, but took big chunks out of the [building] cost."
Lean and mean
Pulte Homes Inc. led the
To keep homes moving, Pulte plans to slow down construction so it’s not out-producing demand. It’s also cutting costs by building homes with fewer free upgrades on smaller lots.
Further, Pulte announced in late May it plans to cut $90 million to $100 million in pre-tax spending and eliminate 16 percent of its workforce corporate-wide.
"But we have to continue to build and sell homes at some minimal level because we have such a huge investment in land," says Koon, who adds that Pulte owns or controls about 6,000 lots for future construction.
The other end
However, while many builders have downsized their products, the Engle Homes local operation has succeeded by introducing larger homes.
Jeff Kaizer, vice president of sales for Engle Homes’ Central Florida division, says its Ashford Grande subdivision in the east
"If the balance of supply and demand shifts, you have to take look at your lineup and restructure it so it meets the competitive market demand," Kaizer says.
Engle, which was the No. 4 home builder on the OBJ list, sold 934 homes in
