The Housing Chronicles Blog: What exactly does 'back to basics' mean?

Wednesday, February 6, 2008

What exactly does 'back to basics' mean?

We continue to hear about builders going "back to basics," but that can mean a lot of different things depending on the builder and the location. In the Tampa Bay area, for KBHome that means not just smaller homes but convincing buyers that they really don't need that jacuzzi tub or upgraded counters as standard features. From a story in the St. Petersburg Times:

...many builders are doing what used to be unthinkable: They're shrinking home square footage and cutting amenities for the first time in decades. It's about the only way, with fixed land, materials and labor costs, to deliver less expensive homes to an increasingly bargain-minded public.

"People are rethinking whether they need an indoor swimming pool in the bathroom," said Joe Narkiewicz, executive director of the Tampa Bay Builders Association.

Such streamlining is happening with a vengeance at KB Home, which is returning to its roots as a provider of homes for first-time buyers.

After inching up to 2,200 square feet in 2006, KB's average home size in Tampa has shrunk to 1,800. The company even reintroduced two-bedroom houses scaled not much larger than apartments at 1,033 square feet. Such downsizing allows the builder to offer attention-grabbing prices "starting from the 130s" -- just over $130,000...

Declining sales and frantic price cutting ravaged builders' profits last year. Ryland Homes said prices have dropped an average of 25 percent from the peak in 2005. Even so, customers are still chasing value in neighborhoods such as Water's Edge in west Pasco County.

"We are seeing people purchasing smaller homes within the product groupings we offer," said Ryland regional president Joe Fontana.

The size reductions stem from a confluence of two factors. Locked into pricey land deals negotiated in many cases during the housing boom, builders can't chop prices much more without going broke. At the same time, buyers can't get the big-money mortgages they once could.

he super slim-down isn't limited to home sizes. Also on the chopping block are the neighborhood amenities that have become a suburban Florida birthright: giant clubhouses, Olympian swimming pools, lushly equipped playgrounds and grandiose entrances.

They're not just expensive to build. They've also been hit by the credit crunch. Builders typically float bonds to pay for amenities through Community Development Districts, or CDDs, Homeowners pay off the debt through fees on their yearly tax bills.

"The market for CDD bonds is probably depressed the next couple years," Rose said. "They just can't raise the money like they could before."

Narkiewicz said the amenity shrinkage, which builders took to heart in 2007, is also driven by customers. If it's a difference between a $300,000 house with a golf course and a $250,000 house without a golf course, more people want the less expensive deal, he said.

Ryland's Fontana agreed that price sensitive buyers are more reluctant to fork over CDD fees. So his company will probably stop using them in all but the biggest master-planned communities...

What about features inside the home? Those are due for a belt tightening, too. In contrast to such freebies as stainless steel appliances, washers and dryers that builders offered the past two years. the future could be far less generous.

Extra high ceilings, three car garages, double-entry doors, kitchen islands: Those frills home buyers thought they could scarcely live without are going optional in many cases.

"People can still add those things back in if they want them," Narkiewicz said. "But they'll have to pay for them."

And not a moment too soon.

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