The economy has a guardian angel looking over its shoulder - the housing industry. According to National Public Radio, "Americans are continuing to buy homes in near-record numbers, despite the cooling economy and massive corporate layoffs."
Except for a brief decline immediately after September 11, home sales in much of the country finished strong in 2001.
A recent report from the U.S. Commerce Department announced that housing starts - newly begun construction excavation - jumped 8.2% in November 2001. More homes are now under construction than at any time since 1987.
Although many contractors are singing the slowdown blues, smart business owners are grabbing the opportunity to grow business and increase profits.
"Companies that maintain or increase advertising investments in periods of economic downturn increase sales and share of market, both during and after a downturn." - Harvard Business Review
"Experience has shown us that marketing during slow times increases customer loyalty, attracts new customers, and solidifies market position," said Jack Meehan, president of The Cyr Group, a full-service marketing communications company, and WeNailIt.net which offers pro-contractors an affordable and customizable solution to all their marketing needs online. Both companies are located in Portsmouth, NH. Meehan, a marketing and sales professional with more than 17 years experience working in the building, remodeling and home goods industry, has seen first hand how businesses have suffered by cutting marketing expenses and not searching for more efficient long-term strategies.
Economists are remaining very optimistic about the future of the housing and remodeling industry. Recent reports show that the trends exhibited by this economy are very different than those of previous slumps.
In a study of U.S. recessions, McGraw-Hill Research analyzed 600 companies from 1980 to 1985 and concluded that at the end of 1985, "Firms that had maintained or increased their advertising during the 1981-1982 recession could boast an average sales growth of 275% over the preceding five years. Those who cut advertising realized a paltry increase of only 19%."
Is the Economy Teetering on the Roof of the Housing Industry?
The housing industry, which is notorious for its peaks and valleys, is propelling the economy in several ways.
First, home sales are at record levels. The National Association of Realtors predicts that 2001 existing home sales will reach record levels, and with an economic upturn expected in the spring, sales in 2002 will nearly match last year.
In December, the Mortgage Bankers Association of America reported that low mortgage rates were also a key reason for the housing and construction markets remaining stable.
Additions and renovations are booming. Since the tragic events of September 11, people have begun reevaluating what is important in their lives. They are postponing vacations indefinitely and spending money to create a warm and secure refuge at home, a process known as nesting.
According to The News & Observer (published in Raleigh, NC), industry retail giants Home Depot and Lowe's have seen sales and net income jump in the past few months, despite the slowing economy.
Other contributing factors include a low inventory of new and existing homes as well as the age of existing housing stock, which in most cases exceeds 20 years. The U.S. Department of Housing and Urban Development released a report stating that by the middle of 2001 the housing industry had gone seven straight months with less than four months of inventory.
The economic stimulus package proposed by President Bush and the Congress in September included a series of targeted tax cuts for businesses and individuals aimed at jump-starting the sluggish economy.
Lastly, housing construction remains strong. The Joint Center for Housing Studies at Harvard reports that "low mortgage rates coupled with the fact that more people are now entering their peak earning years has helped to keep housing strong. Immigrants who are now ready to buy their first homes have also helped to drive the market."
The Trends for the Next Decade
The future of the housing industry certainly looks bright. However, economists predict that the success of housing and the economy will create challenges for builders over the next decade.
The NAHB Economics, Mortgage Finance & Housing Policy Division forecast that "heavy pressure will be put on available supplies of labor, materials and building lots. Technological advances and resource supplies will encourage changes in the way homes are built."
Constraints on timber supplies will push builders and subcontractors to seek alternative sources, such as engineered wood products, steel, concrete products and plastics.
The baby boomers are currently keeping the housing industry strong, but by the middle of the decade, the effects of the baby bust, a decrease in the number of births, will begin to slow industry growth.
Due to the effects of the baby bust, companies will also need to be concerned with attracting, retaining, training, managing and compensating a changing work force over the next decade. Just as homebuyers are getting older, so are construction workers. This will result in the need to retain older, experienced workers.
The remodeling industry is also expected to grow over the next decade. By 2010, Walt Stoeppelwerth, a publisher of management and estimating information for professional remodelers, predicts that remodeling will exceed new home building in volume.
"We encourage companies to take another look at their current marketing strategy as we head into 2002. Companies need to be prepared for the trends that will occur over the next decade and ensure their marketing strategy is in line with these trends," remarked Meehan.
"Advertising in an economic downturn should be regarded not as a drain on profits, but as a contributor to profits."- Harvard Business Review
Business owners should take this opportunity to refocus their marketing and promotional efforts and concentrate on aggressively dominating their market. Start using the following five strategic tactics today to ensure your company stays ahead of the competition.
(Courtesy of The Cyr Group)
