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Now more than ever, nothing matters more than cost

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Reducing costs has become the mantra of home builders across the country as they struggle in the face of a major industry downturn in recessionary-like economic conditions.

Recent financial results of some of the country's big home builders make grim reading as losses continue to pile up, and most forecast the malaise will drag on well into next year.

Beazer Homes USA Inc., Atlanta, posted a net loss of $109.8 million in its fiscal third quarter ended June 30, a slight improvement from the $118.7 million net loss logged in the same period last year, as revenue slumped 39.5 percent to $455.6 million from $753.5 million. However, for the fiscal nine-month period the company's net loss surged to nearly $478 million from $255.8 million a year earlier on revenue that tanked 42.6 percent to $1.36 billion from $2.37 billion.

The industry stands to remain challenged for the remainder of the year and into 2009, Ian J. McCarthy, Beazer's president and chief executive officer, said in a statement. "As such, we maintain a disciplined and cautious operating approach and our principal operating goals during this downturn continue to include generating liquidity, reducing overhead and direct costs, limiting investment in land and homes and reducing unsold home inventories."

As home builders continue to cut costs, the ripple effects are spreading across the supply chain.

With costs at the forefront of the industry, home builders appear unlikely to boost the use of metal framing despite some of the benefits offered over its wooden rival.

"It's like me going to buy a Hummer for a new car right now. It's just not in tune with the market," said a spokesman for Toll Integrated Systems, a wholly owned component manufacturing unit of Horsham, Pa.-based builder Toll Brothers Inc. "I don't see how it would justify itself, unless in a strength application. But we're dealing with townhouses three to four stories high."

Toll Brothers has plants in Knox, Ind., Morrisville, Pa., and Emporia, Va., manufacturing a variety of products using primarily wood, including wall panels and trusses, millwork and other house components.

Compounding the problem of the extra cost associated with using steel is the issue of retooling existing equipment and investing in new machinery, the Toll Brothers spokesman said. "Any switch would be a major machine changeover and retooling because we automatically nail and fasten our stuff together, with the exception of our trusses," he said. "This would be added costs on top of the rise in steel prices. I don't know what the advantage would be for cost. Maybe assembly might be faster and stronger. But I don't see the value in it at this time."

Firming overseas demand for steel produced in the United States due to the weakness of the dollar is doing little to encourage home builders to switch to steel frames, he added. "Our steel is going overseas. But with lumber we're getting it from America or Canada. It's plentiful and we're energy independent. It just makes sense to stick with lumber, and it's even more important now with the market the way it is. In this environment, every dollar has got a name."

While cost is a key driver to wood's dominant position in the market, one of the biggest hurdles continues to be education and the industry's comfort in using wood.

"The big pros to steel framing used in residential construction are its dimensional stability—it won't warp or change size over time the way wood will. It also has a recycled content—all of the steel used in cold-formed steel framing contains at least 25-percent recycled steel," said a spokesman for the National Association of Home Builders (NAHB) Research Center. "But a big plus for wood frame construction is the large number of people who are familiar with and know how to build with wood. Wood is also very good from a thermal energy standpoint."

However, he added that wood does face integrity issues in certain applications. "Some of the cons are that the standard sizes of wood framing are sometimes limiting when one has a unique building situation, such as an unusually large span in a great room. It is also combustible and susceptible to rot, mold and changes in size and shape over time," the spokesman said.


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