Even though demand for low-priced homes is high and supply is scarce, don’t expect a slam dunk just by hitting an affordability target. Price is a big piece in the housing puzzle but that oversimplification can lead to problems.
To understand what role affordability plays in success, we started by breaking the actively selling communities in the top ten markets* into thirds by price bucket. This allowed us to look at the most expensive, middle, and lowest-priced homes relative to each market. To be expected, the bottom-tier for every market is selling the best given current demand dynamics and demographics.
The stats get interesting, however, when we took the lowest-priced communities and sorted by sales rate regardless of price as long as they fell in the bottom bucket. We took those projects and again grouped into thirds and learned:
The top third are selling 8x faster than the bottom third, on average.
The best-selling lower-priced homes averaged nearly 7.0 sales per month per community when averaging out the top ten production markets compared to 2.6 for the middle-third and less than 1.0 for the bottom.
Orlando and Phoenix are extreme examples where the best-selling lower-priced homes are hitting roughly 10.0 sales per month compared to 1.0 and 1.4, respectively, for the slowest-selling homes. See the table below.
“A builder can say they want to build entry-level homes in Phoenix, but they need to recognize that’s only the start of their strategy,” explains Steve LaTerra, our Managing Director of Advisory in Phoenix. “The reality is, there are projects in each of the lower-priced sales buckets within virtually all the submarkets of Metro Phoenix with similar square footage and price.”
The data, then, highlights that there’s more to the housing puzzle than just price. Creating the perfect combination of product, location, schools, and price takes market knowledge and research. We’ve worked on studies where:
Homes in the worse school districts outpace those with excellent reputations**
Being on the ‘right side of the tracks’ can make or break a deal
Poorly executed homes in an “A” submarket falls flat
Smart-Sizing The Home
Many builders are pivoting towards lower-priced homes to capture today’s demand, but it is not as simple as ‘if you build it, they will come.’ Enter our Principal of Advisory and consumer and product expert, Mollie Carmichael, who believes smart-sizing space is critical. Here are her key considerations:
Evaluate the priority of space. Square footage is a commodity, particularly when you begin to smart-size homes. Evaluate where consumers spend most of their time and “invest” there. A 1,500 square foot home can feel like a 2,000 square foot home with the right design.
Know their comforts. “Comfortable” was the number one word used from over 30,000 new home shoppers when describing what they want out of a home. Understand what “comfortable” means to your target consumers. For example, glass and light make everything feel larger and more comfortable, particularly when smart-sizing your homes.
Price is never the only factor. The right price is determined by what your consumers can afford and what their choices are. They won’t buy your homes if they have better options.
Back to the basics. At the end of the day, learn about what your consumers want, what they value, and what they are willing to pay for. Consumer preferences vary by location, price, lifestage, weather conditions, and other factors.