Area homebuilders step in to grab more of the market

Floor plans and home styles aren’t the only things that change in the housing industry. The homebuilder landscape is changing, too.

A few years after several national builders bolted the Pikes Peak region because of financial woes or the nation’s economic downturn, a handful of homebuilders who are new to the area, or who until now have held a relatively low profile, have grabbed significant shares of the single-family market.

Their growth has filled the void left by the vacated builders and spurred competition in the industry — providing more choices for buyers who are looking for deals and value.

In 2005, Greeley-based Journey Homes had a fraction of the single-family home market in the Colorado Springs area — less than one-half of 1 percent as measured by the number of single-family building permits the builder took out that year, according to Pikes Peak Regional Building Department records. Through mid-May of this year, Journey has zoomed to a 14.3 percent market share, which ranked No. 1 among builders operating locally.

Challenger Homes, a decade-old Springs builder, pulled just four single-family building permits five years ago. It has pulled 61 permits through mid-May of this year, which translates into almost 10 percent of the single-family market.

A year ago, Saint Aubyn Homes owner and president Jared Saint Aubyn, Journey’s former general manager in the Springs, was putting together his new homebuilding company, which launched later in 2009. This year, Saint Aubyn Homes already has a nearly 11 percent share of the new-home market.

“Just like anything else, the more people (builders) that are in, the greater competition there is,” Saint Aubyn says. “It forces everybody else to just sharpen up their game. Every builder does different things better than others. The buyer really, in this market, can pick exactly what they want.”

The growth by some builders in recent years coincides with the departure of national companies. As the recession took hold in 2008, they scaled back operations in the Pikes Peak region or left all together — opening the door for other builders to enhance their positions in the market.

Florida-based Lennar, which Pikes Peak Regional Building Department records show had 11.3 percent of the single-family market in 2005, pulled out of the Springs. Pulte Homes of Michigan, which had 9.4 percent of the market five years ago, is constructing only townhomes locally. California-based John Laing Homes filed for Chapter 11 bankruptcy protection last year and no longer builds homes in the Springs area; it had 7.1 percent of the single-family market in 2005.

Large national builders usually had deep pockets to gobble up large chunks of land for hundreds and even thousands of future home sites. Their departures mean developers of residential neighborhoods and subdivisions have property for sale and are anxious to sell home sites at discount prices.

When the downturn hit a few years ago, Challenger Homes President Brian Bahr said a smaller company such as his didn’t have lots of land and debt on its books because of its size, and probably wouldn’t have survived if it did. Now it’s in a position to purchase home sites at a lower cost and offer competitive home prices as a result.
Terms are better, too; builders can take possession of home sites on a schedule that’s better for them instead of the developer, he said.

“A smaller company that’s more stable … can take advantage of the opportunities that present themselves, go in and buy the land that has now dropped in value by 50 percent, put houses on there that are at a compelling value, and thereby pick up market share,” Bahr said.

Some smaller builders who have good relationships with subcontractors can find ways to save on building costs or implement efficiencies that will save money, Bahr said. Challenger helped its foundation subcontractor finance the purchase of a piece of equipment that allows frozen ground to be heated, which saves on the costly process of removing and replacing soil. That holds down prices and helps Challenger attract buyers, he said.

Other builders also believe they’re increasing their market share by offering homes with features and amenities that appeal to cost-conscious buyers who expect deals in this economy. Saint Aubyn said his homes, which sell in the $180,000 to $240,000 price range, don’t come with a lot of optional upgrades because they’re already built in.

Also, some builders have increased their market share because they’re constructing a higher number of speculative homes — those built on the expectation that buyers will come along later.

Saint Aubyn said he tries to keep at least one speculative home in his inventory for every floor plan he has. In Lorson Ranch, a residential development southeast of Colorado Springs where project developer LeRoy Landhuis is financing his home site purchases, Saint Aubyn says he tries to keep a minimum of nine specs for sale.

Saint Aubyn said his company also does presold homes, in which customers choose features and amenities for homes that will be constructed later.

“We’ve had quite a few dirt-start, presold houses, which doesn’t fit our building model but it’s kind of how it’s worked out,” he said.

Even as some of the newer builders have increased their market shares, others remain confident in the products they offer and markets they serve. Colorado-based Oakwood Homes builds entry-level homes in the low- to mid-$200,000s in four Springs-area locations, and does well in those areas and in that price range, said Jay Walther, Oakwood’s Springs division president. Through mid-May, Oakwood’s single-family building permits were 4.2 percent of the market.

“We’re not looking to dominate the market,” Walther said. “If we did, we’d have a wider geographic footprint.”
Springs-based Classic Homes, which for years has been the area’s No. 1 builder in terms of the number of homes built, pulled 14.4 percent of all single-family permits in 2009. So far in 2010, Classic’s market share is 10.4 percent — fourth behind Journey, Denver-based Richmond American Homes and Saint Aubyn.

Classic CEO Doug Stimple said newer companies have filled the void of national builders, which is good for buyers and the local market.

Entry-level home sales — which Journey, Richmond and Saint Aubyn sell for the most part and which generally carry lower prices — are helping to lead the market out of its three-year funk, he said.

Classic, a larger company with several J.D. Power and Associates awards for quality, sells entry-level homes. But it also has a broader selection of styles and prices — averaging about $375,000 and going upward to $1 million, Stimple said. As the market improves, Stimple said, he expects demand to pick up for homes in higher price ranges.

“It’s just a reflection of the natural wave that happens as you’re coming out of a recession into a good market,” Stimple said of the success by some of the other companies. “From a Classic perspective, we’re pleased with the environment that’s improving. We’d rather see local builders doing well. There’s plenty for everyone to enjoy as we improve.”
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