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    Consolidating Forces The industry’s largest builders continued to capture a bigger chunk of their markets’ home buyers last year. That was especially true of the handful of public and national builders, which currently are jockeying for positions again to purchase land for expansion.
Consolidating Forces The industry’s largest builders continued to capture a bigger chunk of their markets’ home buyers last year. That was especially true of the handful of public and national builders, which currently are jockeying for positions again to purchase land for expansion.
Conventional wisdom among builders during the housing recession was that the media didn’t help matters by harping on escalating foreclosures and plummeting home values. But builders aren’t complaining now that news headlines across the country have been heralding housing’s still-rough but steady comeback.

On the Rebound

Beyond the headlines, there’s little dispute that the industry bounced off the bottom in 2012. FNC’s Residential Price Index rose to a two-year high in December. Indices of existing home prices, tracked by the Federal Housing Finance Agency and Standard & Poor’s/Case-Shiller, reported solid gains in the fourth quarter of 2012. And many builders realized price appreciation on new-home sales for the first time in five years, especially in markets where inventories were thin.
Nationwide, single-family starts jumped 24 percent to 535,000 units, and multifamily starts increased by 37 percent to 245,000 units, according to Census Bureau estimates. New single-family home sales moved up by nearly 20 percent to 368,000 units. The National Association of Realtors estimated a 9.4 percent gain in existing home sales, to 4.66 million units, of which 4,128,000 were single-family.
This revival of sales and home values emerged as foreclosure filings, at 2,304,941 in 2012, fell to their lowest level nationwide since foreclosures peaked in 2010, according to Realty Trac. But while foreclosures were down 3 percent last year, 25 states still experienced increases, and 10.9 million homeowners remained “seriously underwater” as of January, representing 26 percent of all outstanding mortgages.

Lingering Foreclosures

This lingering foreclosure dilemma was confined to a handful of states. But psychologically, it’s been a driving force behind a significant dynamic of this recovery: the growing demand for rental housing. Of the 167,000 multifamily completions in 2012, 155,000 were rental units. Even big production builders—such as Toll Brothers and Lennar—dived into rental construction.
All the while, the housing industry’s leading production builders continued their expansionary ways last year, when, according to BUILDER’s annual ranking, the top 100 builders closed 167,658 homes, an 18.4 percent increase over 2011, and representing 44.24 percent of total new-home sales and multifamily for-sale completions. Much of that gain accrued to the 13 publicly owned builders, which reported a 25.9 percent jump in home building revenue, to $26.6 billion; and $2.82 billion in aggregate profit.

Strong Growth

As long as employment improves and mortgage lending doesn’t dwindle, industry watchers expect housing to grow stronger in 2013 and 2014. To achieve their objectives, though, builders must navigate scarcities in developed land and construction labor. And who really knows how many renters will become buyers, or whether “demographics”—the housing optimists’ favorite word—will translate into business.
Many builders, chastened by the recession, insist that they are better prepared to meet the market both as it is now and as it changes. David Weekley Homes, for one, invested in technology so that as it grows, “we don’t have to add so many people” to keep up, says chairman David Weekley.
Peter Osterman, vice president of operations for Florida-based Centerline Homes, cautions builders to avoid the “lack of discipline” that during the downturn pulled them away from their “core principles.” He thinks too many production builders became de facto custom builders by acceding to every buyer’s design whim. Centerline offers 2,500 standard options per model type, but it keeps them under control with extensive house-plan reviews by Osterman and the company’s directors of field operations, purchasing, and marketing.
Osterman also thinks builders let their construction practices become too lax during the recession. Centerline does not allow its construction managers to make field changes unilaterally. And Osterman personally reviews every variance and change order, with an eye toward finding the root cause of a problem. “A leaking roof over a garage is only a symptom. You get what you inspect, not what you expect,” he says.