As the Triangle housing market emerges from its worst downturn in recent memory, it is exposing a significantly altered competitive landscape.
Custom homebuilders, who once dominated the regions new home market, have been eclipsed by national players with the financial clout to thrive amidst tighter lending standards.
The competitive dynamic between new and existing homes is also shifting. Many homebuilders experienced near-death experiences during the bust, and the industry today is much more cost-conscious and attuned to its customers wants and needs because of it.
Trish Hanchette, Lennars Raleigh division president, says for the past two to three years her biggest competitors have been other new home communities not existing inventory.
She attributes the shift to a number of factors. Low interest rates have significantly reduced the overall cost of buying a home, and buyers looking to get the most for their money are finding the best deals in new communities.
The pricing in new homes has gotten to be so good, Hanchette said.
Homebuilders are also increasingly emphasizing the state-of-art technology in their product, and the cost savings that it can produce.
The industry has really moved pretty rapidly in the last five years or so in regards to energy efficiency and technology, said Hampton Pitts, an executive vice president with Ashton Woods Homes, an Atlanta-based builder that is active in eight Triangle communities. Just like in a lot of businesses, technologys taking this quantum leap and its starting to play out in the homebuilding industry where homes that were built eight to 10 years ago just have dramatically differently costs of operation as it relates to utilities.
And its not just energy-efficient appliances that have become commonplace in new homes. Granite countertops and stainless steel appliances items once found mostly in higher-end homes are now being offered in more and more starter homes, notes Rich Van Tassel of Royal Oaks Building Group.
The inclusion of such amenities inevitably has an effect on the marketability of existing homes.
Unless its a trophy property, resales always have to react to new homes, said Stacey Anfindsen, a Cary appraiser who analyzes Multiple Listing Services data for area real estate agents. So if new homes have granite or stainless steel, existing homes have to react to that.
Thats been particularly true in recent years as buyers have come to expect that an existing home be move-in ready, which has required sellers to invest money making improvements before putting their home up for sale.
New homes dont have to worry about being move-in ready, of course, though they may still have trouble competing with resales in other areas.
A lot of resales are built closer in and they might have a bigger lot; those are the two advantages that a resale sometimes has on us, said Van Tassel.
At the moment, the new home market is benefiting from the severe drop in inventory thats occurred in the Triangle over the past two years. With inventory levels at record lows, buyers have fewer options, which means less direct head-to-head competition with existing homes.
Anfindsen said hell be watching to see whether the lack of new homes on the market causes the gap between the average price of an existing home and a new home to widen over the next year. The average sales price of new homes was 26 percent higher than existing homes in the third quarter. That gap was 32 percent in the third quarter of 2011.
Homebuilders are now in a better position to command higher prices because they have greatly reduced the number of spec homes available in the Triangle. Lennar, for example, now builds an equal amount of spec homes and presales, whereas in the past spec homes accounted for about 70 percent of its inventory.
Spec homes typically sell at a discount and are not loaded with options, and a glut of them gives buyers more negotiating power.
I think our industry certainly for several years now has got our discipline around how much inventory we want to have out there on the market, Pitts said. Its not a total reversal yet into what I would call any kind of a full-on sellers market. But builders that have inventory are no longer really in desperate mode like they might have been several years ago. Were able now to kind of hold the line on the value and the pricing of those homes.