Home builders get creative to make sales

Peter
Peter Long, of Kingsman Construction, built a total of 80 houses in the northern suburbs back in 2004. Last year, that number plummeted to just three new home constructions. Here, he stands in front of a New Hope home that he can't sell. So he's been renting it out.
MPR Photo/Annie Baxter

The Twin Cities suburb called New Hope may have a name that rings with optimism, but there are plenty of things around town that are crimping the hopes of builder Peter Long of Kingsman Construction.

Perched at the wheel of his white pick-up truck, Long gives a tour of the area.

He built a total of 80 houses here and in neighboring suburbs back in 2004. Last year, that number plummeted to just three new homes.

Long slows down in front of a two story home, which, he says, is key to understanding why his business is suffering these days.

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Occupied home
This New Hope rambler, built in 2007, hasn't sold. So home builder Peter Long has a renter in the home who is working to improve their credit. When they qualify to buy the house Long will drop the price from $319,000 to about $280,000.
MPR Photo/Annie Baxter

"Coming up on your right here, this house was vacated by its owner and went through the foreclosure process," Long says.

After the owners left, a pipe burst inside and flooded the place. Long says that's driving the price of the home down and creating more competition for his 4 new homes sitting on the market.

Buyers are hungry for deals like this one.

"If someone can come in and purchase that at a discount, hire a contractor to fix it up, they are still able to buy it for less today than they would a new construction," Long says.

What's more, some would-be buyers can't qualify for credit to buy Long's homes, given the recent chill in the credit industry.

So, Long is trying to find ways to keep his business running. He pulls up to another home in New Hope, a rambler he built in 2007 and hasn't been able to sell.

Foreclosed home
This foreclosed home in Hew Hope poses a problem for home builder Peter Long. After the owners left, a pipe burst inside the home and flooded the place. That's driving the price of the home down and creating more competition for his 4 new homes nearby sitting on the market.
MPR Photo/Annie Baxter

"What we've done with this particular house is we have a renter in there to help make our payments. That renter then is working on some credit situations that they have so that they can eventually purchase in the fall of 2008," Long explains.

And would he have considered this option in the past?

"We would never have put a renter in a new construction house for the past seven years," Long admits. "But today you're doing that. Guys are just trying to manage their cash flow."

When Long does eventually sell to the renter, he'll drop the price from $319,000 to about $280,000.

The Commerce Department says it's seeing the steepest drop in new home sales on record. Between 2006 and 2007, the number of national new home sales fell 26 percent to 774,000 units.

As builders reckon with those historic figures, many, like Peter Long, are trying out some creative ways to move their inventory, according to Joshua Fowler of the Builders Association of the Twin Cities.

Duplicated home
Home builder Peter Long owns an empty lot across the street from this house. Now, this house is for sale and the home Long planned to build is similar to this split-entry design.
MPR Photo/Annie Baxter

"Some of them have been giving pretty substantial discounts on the house, selling some of them at a loss," Fowler says. "That's not the norm, but (I've been hearing about) all kinds of incentive packages. I've heard about giving trips away and those kinds of things, just to get people to come to the door."

Fowler says pricier homes going for $500,000 plus are actually selling fairly well without all the marketing gymnastics, but some builders tell a different story.

According to Bill Johnson who runs MW Johnson Construction, it's not the high-end homes that are moving.

"Actually, we're selling more in the lower price range, (to) first time buyers," he says.

MW Johnson Construction, the largest privately held builder in Minnesota, builds about 300 houses a year ranging in price from $150,000 to several million dollars.

Problem lot
Here's the empty home lot builder Peter Long owns. He'd planned to build a split-entry home on a parcel of land across the street, however now there's a similar style house (shown) for sale that's not selling.
MPR Photo/Annie Baxter

Johnson says he's trying to weather the housing slump without too many sales gimmicks, though he did put some of his inventory up for sale at a giant auction in the Twin Cities a couple weeks ago, in which several new home builders participated.

The company unloaded 20 units at the auction, but he still has 80 units sitting.

Johnson says he's not demoralized, which is hard to figure, since his profits have pretty much dried up and he's laid off 30 workers.

He seems intent on presenting his loss as a buyer's win.

"We're not making any money but that's okay, because in the big picture, we'll be all right," Johnson says. "If we can get people into homes and start building wealth, that's good for all of us."

Johnson says it's also important to note that even if he cuts prices on the homes he's selling, he's getting discounts from all his suppliers and contractors, who are also slashing prices to get more business.

But builder Peter Long is somewhat sanguine about the situation. He's not abandoning his new home construction business, but he is branching out.

"We've had to get into the remodelling business and addition business," he explains. "We're still going to do some new construction, but we're going to have a mixed bag. We're not going to be solely dependent on one thing."

Even if the housing market does turn around in a year or two, Long won't return to specializing in new home construction. He says it's a dog that won't bite him twice.