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The 2005 version of Florida made homebuilders big and rich. It made Southern Crafted Homes pause as management wrestled with a difficult choice.
Jim Deitch, the company's chief operating officer, recalls the staff meeting where management reviewed the long list of places where money could be saved. Different cabinets, cheaper floors, less durable countertops could be installed and the houses would still sell. That would drive greater profits to the bottom line.
But the company chose not to cut corners and avoided the overbuilding frenzy, sticking with what had made it successful since entering the market in 1990.
Southern wanted to do business with “a different kind of buyer,” avoiding investors looking to flip the house for quick profits.
Now, with 100% owner-occupation in its communities, Deitch says foreclosures simply haven't happened. In one community of 167 homes, for example, a total of three “For Sale” signs are to be found.
The strategy has kept the company steady — with roughly $40 million in annual revenues — and profitable in each of the last four years. Regarding one of the most difficult downturns the Florida building industry has ever seen, Deitch says: “We chose not to participate.”
Sticking to the same business plan each year has kept home prices stable for Southern. One might expect a 64% increase in year-over-year sales to be driven, at least in part, by bargain dealings.
But Deitch says his company's prices — which range from $185,000 to $445,000 — have remained steady for years. By not raising prices in 2005, Southern hasn't had to lower prices in 2009.
The company hasn't been entirely unaffected by the market slowdown. The hundred-home-a-year builder reduced construction by 20% in 2008, and by 25% in the first half of 2009. And year-over-year increases compared to September 2008 only say so much, given the state of markets at that time.
But since August, business returned to full speed. In fact, according to Deitch, 2010 will “certainly be a good year”.
The steady approach has put Southern in a strong position as Pasco County expands its role beyond serving solely as a bedroom community for Tampa, fostering modest business growth within its own borders.
Recent relocations decided upon by T. Rowe Price and USAA have helped generate sales for Southern. Of those potential buyers, Deitch claims a “huge capture ratio” for his company.
According to Deitch, those captures were a result of Southern's ability to react more quickly than national-based competitors to market changes. “As a local builder, we're able to turn on a dime,” he says.
Including professionals in education, medicine and especially the military, Deitch says nearly 75% of his company's clients have selected Pasco as a place to relocate their families.
Deitch, a 12-year Marine Corps veteran, is especially proud of his company's relationship with the five Army and Air Force colonels who have purchased Southern homes.
It's exactly those types of relocated professionals for whom Southern builds homes. Professionals, particularly, are in search of quality in their homes.
As the company continues to sell homes, it continues to build as well. Deitch has a positive outlook in terms of Southern's future, motivated in large part by a continuing shift in home inventories.
He estimates those inventories at roughly seven and a half months' worth of homes, where six is considered the normal. Furthermore, that 7.5 figure comes with a disclaimer —Deitch says the homes that have been built are in the wrong location.
As a result, he anticipates a shift in buyer preference for homes closer to urban areas, and that bodes well for Pasco. Given his company's success in 2009, any improvement in local or national economic indicators would bode well for Southern Crafted Homes, as well.
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