In 2020 I only made one real prediction – that what followed the (thankfully brief) pause in home buying activity would lead to the best housing market of my lifetime. In 2021 I’m going out on a limb and making twelve of them.
Making predictions isn’t about trying to be perfectly accurate – a typical scorecard approach doesn’t really work. Going through the process of developing predictions allows you to look at new perspectives and stretch your mind’s ability to see changing connections and potential trends.
I hope you enjoy taking items on this list and following them to your own conclusions as well, and if we are all lucky, you’ll share some of them back with us.
The market will be so strong that builders will pull back so that their company does not overheat. It will not be as much about saving money or maximizing profit. For most, it will be about not making tough matters worse when it comes to consumer demands and expectations that can’t be met due to a lack of inventory and home site supply.
The money saved by ad spend cuts will be met with large increases in making sure that all home building operations are digitally native, work together, and meet or exceed customer demands. Web sites, CRM systems, data management, internal communication, interactive tools, and yes – “buy online” solutions. Efforts led in whole or predominantly by I.T. will be less successful than those led by a marketing technologist who can see the challenge holistically and keep the focus on the customer. Efforts led by a company owner or VP of sales & marketing who isn’t technologically proficient (thinking technology is “cool” isn’t enough – you have to understand how technologies actually work) will end worse of all.
Mergers and acquisitions will still occur, but market expansion will steal a lot of the momentum as companies believe it will be easier to find new markets than new builders who want to sell at a reasonable price. If you currently find comfort in dominating your local marketplace, be warned – you will likely see new challengers before the year is out. I have six calls already scheduled this year with builder partners who want to understand the ideal way to consider which markets to expand to. It won’t just be nationals and super regionals, but single market private builders will search for new opportunity from beyond as they look for opportunity to capitalize on the continuation of the best housing market of my lifetime.
I keep hearing of more initiatives by builders underway to allow for an “add to cart and checkout” kind of experience for consumers. Adding a checkout feature to your site in the middle of low inventory, extremely high demand, and frequent price increases isn’t likely to go well. Reserving is not the same as buying. Expressing interest with some money attached to it is not the same as buying. Signing a multiple page purchase agreement and putting down the full deposit is not really what the majority of consumers want – they want a better experience of putting the pieces of the home together to get an idea of the costs, features, and benefits of your homes.
The example of how car manufacturers function is always referenced, but I think many miss the point entirely. Excluding Tesla (we’ll return to them in a moment), I have to imagine for every one car purchased entirely online, about 500 to 1,000 cars or more are completely configured and built online but “checkout” is never completed. That’s because the process of putting your car together online is about educating yourself on the options, trade-offs, and price BEFORE you contact a sales person or arrive at the dealership. Designing and purchasing a home online is never likely to be successful when we still don’t really allow for the design experience that consumers want. They won’t hit the buy button – even if technology allows it to appear on your website – unless the design process removes all questions and concerns.
Tesla’s online configurator for their cars (which ARE purchased online – often with the assistance of a sales person, by the way) have minimal options because even Tesla realizes they cannot currently allow customers to highly personalize their cars online using today’s technology and sell as many cars as they want to. There are five choices to make when ordering a Model 3 – including exterior paint color. That’s it. Your builder – even if they are highly standardized – likely still has more than five options in your owner’s suite alone.
I don’t have hard data on the adoption of on-demand access from UTour, NterNow, Rently and others, but this year the majority of builders will use them in some form. The pandemic pushed more builders to test these technologies, and most won’t stop using them when the virus is no longer a concern. As inventory homes are sold off, more builders will adapt to using on-demand access on their decorated model homes as well. Enough large players will go “all in” on this technology to tip consumer awareness of it to the point where they will ask for the option – driving even further adoption by others. To be clear, I don’t think we will see the peak use of on-demand access services until the next market downturn, but the growth will be intense in 2021.
Concern about the impact of potentially rising interest rates will cause some builders to consider “qualifying” backlog buyers at both current rates and possible future rates, or search for new loan programs entirely. Without getting too far into the minutia, some conservative builders will request that their buyers in backlog go through a form of stress testing to see if they would still qualify if rates moved up sharply due to inflation. Many will try to lock in the rates for their customers, but as construction time lines continue to be pushed further out, it may not be an option for the entire backlog. I’ve heard rumors of a product that will let buyers lock in today’s rates even without a signed purchase agreement for up to 12 months. Innovation on the finance end to both help the consumer but also protect the expanding backlog of the builder will keep evolving.
Standardization and streamlined options will be the continued focus for most builders. Those that remain “custom-friendly” will be able to charge an outsized premium due to scarcity. This focus is necessary for the industry as a whole – not just due to demands for making more homes faster, but also to make builders’ aspirations for selling new homes entirely online comprehendible. Please, though, make sure that someone in your organization remembers how to do custom work, because it will be necessary when the market turns.
Home builders have been trying for decades, unsuccessfully, to find a better way to capture the data around walk-in traffic. The use of on-demand access tools that require digital registration (and verification) to gain entry plus digital selling tools like NoviHome, Rendering House, Outhouse, and others will finally start closing that gap for good. The investment in technology by builders will mean that these digital selling tools will become more useful – online and offline – as they start to be more interconnected with other internal systems. Sales teams that were forced to use their own website and digital content as part of their sales process will begin to adapt to using these technologies more consistently in the model home. Registration will be required by the prospects in order to save what has been discussed or share it with them.
Pod-based selling will be where it starts, but not where disruption of the typical sales structure ends. Letting sales people turn on or off availability during off-peak hours will let those who want to hustle do so, while also letting other salespeople protect their desired work-life balance. This will only apply to new leads and appointment requests – not to existing customers. The reasons for this push toward uberization will vary widely (we’ll discuss this on upcoming podcast episodes) but the idea of loosening the historically tight connection between salesperson, model home, and set hours is an unavoidable reality. Online sales teams will have a big role to play in this, but they won’t be replacing onsite sales teams anytime soon.
Home builders raising prices and not fulfilling promises to buyers will be a likely narrative before long. Last year, most news coverage was favorable as our industry became a bright spot during a tough time. This can be attributed to builders creating jobs, growing in popularity, and “home” becoming a more important word than ever before. Going forward, make sure you are building and using your testimonial and review engine. You’ll want your own happy customers sharing their stories to help you communicate that, while the industry as a whole may be struggling, your building organization is doing the right thing and building homes for happy and loyal homeowners.
There is no question that in the long term, renting a single-family home is more profitable than selling it once and moving on. One of the biggest challenges in changing business models is cash flow and existing banking relationships, but the current environment of “free and easy” money due to low interest rates and government stimulus means investors are throwing serious money at businesses who will build single family homes for long-term rentals. More large-scale projects will come online in 2021 and 2022 than in the last 10 years combined. I believe single-family, for-rent communities will play a critical role for companies in the next downturn as prices of homes soar higher and interest rates go back up, making homeownership less attainable. No large sums of money to put down and the freedom for individuals and families to move more regularly as desired will be particularly strong selling points.
Many of you may not have heard of CoStar, but they are the #1 commercial real estate information company in the world and have a market cap of $35 billion (Zillow’s market cap is $31 billion). They also own and operate Apartments.com which, until now, has outmaneuvered Zillow’s rental business to become the top rental platform (they just announced over 1 billion renter visits in 2020). CoStar purchased Homesnap in late 2020 which marks their first major step into the single-family home market, and also gives them immediate connection to the majority of MLSs nationwide. Zillow certainly has the brand talent to ultimately keep winning, but they seem to be operationally stretched pretty thin. Plus, the iBuyer craze has cooled as the market strength makes selling an existing home an easier proposition – hurting both Zillow and OpenDoor’s momentum and investment there. It will be an interesting contest to watch over the next five years.
I enjoyed thinking through the slower shifts of the last few years plus the impetus caused by 2020 to come up with this list. Right or wrong, predictions help us explore changes happening within our industry in order to move it forward. 2021 seems like a good (and necessary) year to do that.
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