How COVID Is Impacting the Real Estate Market

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The Smarter Building Materials Marketing podcast helps industry professionals find better ways to grow leads, sales and outperform the competition. It’s designed to give insight on how to create a results-driven digital marketing strategy for companies of any size.

In this episode, Zach talks to John Burns, CEO at John Burns Real Estate Consulting, about how COVID has changed the outlook for homebuilders in America and what building materials manufacturers can do to pivot their sales and marketing strategies and thrive in uncertain times.

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You may remember we spoke to Todd Tomalak from John Burns Real Estate Consulting back at the start of the year, about what he saw in terms of trends for the home-building and real estate markets. At the time, Todd said he was “positive near term, cautious medium term, encouraged long term.”

But of course, that was before COVID-19 and all the change and turmoil it has brought to nearly every aspect of business and day to day life. We thought it would be useful to have a chat with John Burns himself about how things have changed and what his outlook is for the future.

The first thing John says it’s important to understand is that if you’re making decisions based on data reported in the media, that data is already old. We know the current economic situation is changing quickly, but for John, the other aspect to consider is the scale at which it’s changing.

"March data, they reported 700,000 job losses. Well, 10 million people filed unemployment the last two weeks of March."

“March data, they reported 700,000 job losses. Well, 10 million people filed unemployment the last two weeks of March, and that's not included in the data. And that was as of March 28, which there's this thing called payroll on March 31 that's not even in the data yet. Even if you think two, three week old data is not that bad, it's pretty significant.”

John also thinks we need to understand the timeline on which recovery will occur. While everyone is eager to get back to business, with more than 10 million people out of work and with companies struggling to figure out how they’ll manage debt with reduced revenues, “back to work” may not be as instantaneous as we’d like to think.

What does all that mean? If, at the start of 2020, John and his team were feeling pretty positive about what the year would bring, how are they feeling now? And what areas of the industry do they think will be most impacted?

John says, “California and Washington are the leaders in having shut down, so you can see what has happened there. The [home] sales there have gone down substantially. So we're forecasting that's going to be rolling out around the rest of the country.”

He acknowledges that the building industry can be pretty resilient, but that sense of resilience also varies from region to region.

“I use the hurricane in Houston a few years ago, which was just devastating, as an example. The Texans got back to work. I mean, there are certain cultures where people are hunkered down and really scared. And I'm not saying one's good or bad, but there are other cultures who decide they’re going to build through this.”

John believes homebuilders are going to try to push through. “They’ll say, ‘We're gonna get this done, we're going to be smart, we're not going to put our employees at risk. We're going to slow down construction with fewer subs in the house. But those people need paychecks, and we need the homes built as long as they're not putting their health in danger.’ We're seeing quite a bit of that.”

"We were at a 33-year high on multi-family construction, and the federal government just told everybody to stop paying their rent.”

As to what parts of the industry will feel the greatest negative hit, John thinks multi-family construction will feel it the most. “You got to look at where we were heading into this. We were at a 33-year high on multi-family construction, and the federal government just told everybody to stop paying their rent.”

With low-margin rentals, tenants who can’t pay rent, landlords with decreased revenue and an already large supply, the demand for new multi-family construction is expected to drop significantly.

The good news is John does see single-family construction weathering the current conditions better than its multi-family counterpart, due in large part to the way the big homebuilders are financially structured.

“The big builders, the public builders and a few of the largest private builders have structured their debt with bonds that aren't due for a very long time. So they've got no lender breathing down their back.”

Zach likens John’s conclusion to Warren Buffet’s strategy of buying stocks during tough economic times. Those parties that have capital and are able to spend it while others are struggling will find themselves ahead as conditions improve.

Zach brings up one of the common themes from recent episodes: “One thing we've been talking a lot about on the podcast is that when there's great uncertainty, there's always great opportunity. You mentioned a minute ago that the big builders are just going to continue to be aggressive. What opportunities do you see for anybody in the building construction space?”

John’s biggest recommendation is for builders to focus on their supply chain. “When we come out of this, there's gonna be some supplies that are completely not available at all from certain manufacturers. You may need to respec your house; you may need to do completely different countertops and completely different cupboards because they're going to be available.”

He also sees, along with the adoption that’s already been happening in the last twelve months, builders putting a greater emphasis on digital selling.

Zach wants to know more about that: “How do you see it changing? Virtual selling, ability to research and resource material? How do you foresee it changing in the long term?”

John thinks the big change will be builders doing more selling by appointment: “It's just such a more efficient way to sell than just to sit there in a model home from 10 to 6 and talk to people as they go through and hope they are interested in buying.”

He also thinks the move to digital selling means builders will have to change the information they make available online. While the home resale market has been using virtual listings, including multi-media tours, along with pricing and closing information, new home sellers have lagged behind.

Zach sees this as well, particularly given the current limitations for most buyers. “I think about the convenience of communication. If I'm a homebuilder, I've got to make it super easy for people to get answers to the questions that they have. Because right now in our quarantine, I can't leave my house. If you're making it difficult for people to get answers, if you're making it hard for you to find information, they're going to go elsewhere.”

Along with homebuilders getting closer to their supply chain, John thinks manufacturers need to be getting closer to homebuilders. He sees a huge opportunity for great communication and relationship building that currently isn’t happening.

“Right now, the level of communication is the builder's VP of purchasing and the building product's sales guy beating each other up on price and rebates. There's no conversation about, ‘Hey, what's on your drawing boards for next year or the year after? Or what are you finding your consumers are willing to pay you more for, so you're going to order more of?’”

“Homebuilders do no consumer research. Virtually none. Building products companies spend millions.”

John thinks there needs to be more executive-to-executive conversations. And for those manufacturers, John has this tip: “Homebuilders do no consumer research. Virtually none. Building products companies spend millions.”

For those manufacturers looking for a way to get their foot in the homebuilder door, offering up some of that intel may be a great conversation starter, because it adds value and provides insight that many potential home-building CEOs may not get otherwise.

Zach sees a huge potential to start those conversations while we’re all at home. “Now's the greatest time for a manufacturer to create those relationships. I know a lot of builders are considered essential businesses in certain states, so they're allowed to continue to produce, but they're not able to meet with as many people and so their ability to meet with you is greater.”

Got a Question?

Get in touch with guest John through the John Burns Real Estate Consulting website, or by email.

If you have questions about how to grow better relationships with homebuilders, let us know! Shoot us an email at podcast@venveo.com with all of your questions.