Construction firms gain ground by simply surviving the housing recession


January 27, 1991|By KENNETH HARNEY | KENNETH HARNEY,1991 Washington Post Writers Group

ATLANTA -- Bob Simmons summed up the predominant mind-set of his fellow homebuilders, when they met here in the wake of the worst construction year in more than a decade.

"Every day you stay alive," he told a packed seminar room at the annual convention of the National Association of Home Builders, "you increase your market share" -- even if you're not making a dime of profit in the process.

Think about that for a moment, if you're even remotely considering buying a new home sometime in the coming months. The name of the game for aggressive builders in dozens of markets around the country is survival. Survival to the point of cutting profit margins on the houses they sell to you to near zero if necessary.

The corollary name of the game for savvy consumers in those markets is to pinpoint the pared-to-the-bone deals. Then grab them before either the market turns, financing shoots into the double digits again or top-quality builders throw in the towel.

Simmons is senior vice president of Kettler-Forlines Inc., a homebuilding firm that's active in the Virginia and Maryland suburbs of Washington. But his views on how to survive the current lean times were echoed here by builders from every major region of the country, either in formal presentations or informal discussions.

"I'm scared to death [of 1991]," said John B. Canuso, a New Jersey builder active in the Philadelphia suburbs for the past 25 years. He's cut his staff in the last 18 months by 40 percent and sold trucks and equipment to raise cash.

"We're working for just overhead," Canuso admitted to fellow builders. "But this is the year that carries us out of this recession. And we're going to be there."

Simmons, whose sales plummeted from $60 million to $30 million in a 12-month period, laid off 50 percent of his staff, slashed advertising budgets and dumped landholdings that could only produce housespriced too high for the current market. He's also told all his subcontractors that they, too, have to work on a low-fat, low-profit-margin diet as the price of continuing to do business with his firm.

The fact that Simmons, Canuso and their counterparts around the country are cutting profit margins doesn't mean they're going to give away their houses if you squeeze them hard enough.

What the lean and hungry builders are prepared to do, however, is to work with buyers who've shopped hard, checked out all the competition and can recognize value when they see it.

You have a house to sell before you buy a new one? Builders who plan to survive are rolling out programs designed to help you do that, perhaps through a "guaranteed purchase" using third-party firms who buy your home. Or there are a variety of bridge-loan financing concepts that give you six months or more to conclude your sale.

You have mortgage money problems? Builders participating in seminars here last week said financing has become far less of an obstacle in the past 12 months. Unless your credit rating is absolutely horrendous, you can now custom-tailor the type of financing you need through any competitive builder.

You want little or no down payment? You want help with closing costs or points? You want a 7 percent interest rate? You name it, and you're likely to find builders better equipped -- and more highly motivated -- than at any time since the 1981-1982 recession to put it together.

To spot the truly impressive values in your market, take more time shopping than you would in a healthier economy. That's because while some builders are cutting profit margins but not quality of product, others are quietly downsizing units, downgrading everything from carpeting to appliances to get a lower price tag.

The key to shopping in lean times is learning to pick out the top-quality builder who's not skimping on anything, but is absolutely committed to survival. Then, as they say in the auto ads, bring them your deal.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.