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Volume 20
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Strategically Targeting Segmentation in the New Home Arena:
Sullivan Group Demand Optimization Model
Housing starts and closings remain near
multi-year lows in markets around the nation, suppressed by recessionary
conditions, the pressure of REOs, and a general oversupply of housing product. This lull in activity challenges builders and
developers to strategically plan for an evolving reality in the housing market
cycle. Part of that process should
involve dissecting new home demand potential in a market. Effectively assessing demand goes well beyond
looking at an overall number for a market.
Builders and developers that take extra time to study the details of
demand can discover ways to increase sales through strategic segmentation. This
ultimately leads to the most appropriate connection of consumer needs to
housing product.
In recent months, we have guided
several of our clients in various markets into a more in-depth look at new home
demand going forward. As a result of our
“Demand Optimization Model” we have uncovered opportunities for our clients to improve
the sales potential of their communities through enhanced segmentation. Our model has helped our clients:
- Indentify
underserved product and price niches within markets
- Utilize
product configurations/densities to target a wider age range of buyers
- Adjust
product mix and price levels to fit the true make-up of a market
The following graphs/tables and
accompanying text summarize some of the key findings that we were able to provide
to our clients:
Depth of Market
Combining our annual new home demand
projections with historical master planned community capture rates of new home
sales has allowed our clients in Austin, Tampa, Phoenix, and Las Vegas to more
accurately gauge the future sales potential of their communities. We used these calculations to make product
segmentation adjustments to generate optimal sales levels.
Pricing
Niches
We utilized our new home demand by price range projections to
uncover niches in the new home market that are undersupplied. In the Austin MSA, our analysis found an
opportunity to offer a limited number of semi-custom homes within a master plan. With lot sales to production builders
declining, this provided an additional opportunity to sell lots.
Life Stage Segments
By
assessing new home demand by both home price and age range, we were able to
expand the segmentation options for a master planned community in the Phoenix
MSA. Our model shows that multiple
builders can target similar price points, but hit different buyer profiles
through product design, level of specification, and market timing. This enhanced segmentation increased the overall
sales potential of our client’s community.
Methodology Notes:
Our “Demand Optimization Model” utilizes proprietary calculations based
upon market specific data related to projected growth levels, income levels,
age segmentation, homeownership rates, and turnover ratios. The net result is the most detailed and
market accurate “demand picture” available.
For those organizations interested in uncovering what a strategic
assessment of demand and segmentation can do for your operations, Sullivan
Group Real Estate Advisors has the capabilities to create our “Demand
Optimization Model” for any metropolitan area in the United States.
Sullivan Group Real Estate Advisors conducts feasibility
studies, strategic plans, repositioning and product, pricing and absorption
analysis for homebuilders, developers, lenders and the public sector all over
the United States. In the last 12
months, we have completed 350 studies in 50 metro areas. Please contact Tim Sullivan at 858-523-1443
x152 or at t.sullivan@sgrea.com.
Sullivan Group Market Briefs provide a clear, concise view of key economic, demographic, and housing market indicators in the top 50 U.S. metropolitan areas.
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The Sullivan Group Real Estate Advisors team of professionals has an extensive track record of providing decisive analysis and answers to the nation's real estate industry.
Our services include custom residential research, market monitoring, commercial research, and litigation support. Contact us today for more information.