Following a year of flat demand and softening prices in the $300,000 to $600,000 range, San Antonio–based Whitestone Custom Homes has flourished thanks to rising demand and falling competition. The small, semi-custom local builder experienced a 71% rise in quarter-to-quarter sales in the first quarter of 2017, and it expects further growth to come.
Tim Rice, President, Whitestone Custom Homes
Tim Rice, president at Whitestone, says the company’s late 2016/early 2017 growth stems from an improving upper-end market, in which buyers are beginning to overcome the “sticker shock” of the luxury price range. “The higher-end price range was a little slow last year, and it’s completely turned around,” says Rice, noting that he credits the presidential election for the shift.
At the same time, the builder has benefited from an opportunity to sidestep one of housing’s three “major pain points”: lots, labor, and lending. In this case, Whitestone’s lot availability has skyrocketed in the past year, owing to a number of unbuilt luxury lots that developers and builders alike are looking to sell.
At the start of 2016, lot availability in the market opened up, according to Rice. “The big publics are dropping deals in the upper end,” he says, “and we are getting calls like crazy.”
The builder’s lot inventory more than doubled from 2014 to 2015, growing from 25 lots owned and 250 optioned to 59 owned and 248 optioned. One of Whitestone’s most recent acquisitions is a former Lennar project, and the firm is also in the process of securing a set of lots previously acquired and sold by two other builders. Another recent offer was for a set of high-end, brand-name lots from a big regional company. “I wouldn’t categorize it as pick and choose, but it’s not far from it,” Rice says.
A Changing Market
In 2007, at the peak of the pre-recession housing boom, the San Antonio market delivered up to nearly 20,000 new housing starts each year, with 27,000 to 28,000 lots “on the ground” at any given time, according to Jack Inselmann, senior regional director for Metrostudy in San Antonio.
However, the rate of new growth slowed as the Great Recession took hold, and the city’s housing market bottomed out to 6,600 new yearly starts by the middle of 2011. While higher-volume builders cut back on their production numbers, Whitestone Homes benefited from the drop in regional and national competition. “We didn’t have much competition during the recession,” Rice says. “The recession was actually very good for us.”
The builder’s real struggle came in the national market’s immediate post-recovery—or the “sensitive recession,” as it happened for Whitestone. From 2012 to 2013, as the city’s banks and investors began to re-enter the housing market, luxury homes were in high demand, and national and regional builders were ready to put down new supply. By 2015, the share of big-volume builders active in the $300,000 to $600,000 range had grown from a half-dozen to about 20, Inselmann says.
“One of the things that’s happened in this new upcycle is that more builders … have moved into the $300,000 to $600,000 range,” he says. That price point is “the most competitive that it’s ever been.”
However, by the third quarter of 2015, local market demand began to shift away from the luxury price point. This change left a crowded, highly competitive market with far fewer potential buyers—and far fewer available lots—to compete over. From the third quarter of 2015 to the third quarter of 2016, the so-called sensitive recession set in over Whitestone’s price point.
During this time, Whitestone began to get calls from developers and builders looking to sell off lots or projects in the $300,000 to $600,000 price range that had been dropped by other builders. “You had all these big builders maybe two or three years ago moving into higher price points and then the market was a little soft and then they realized how custom they had to be, and then they retreated from them,” Rice says. “The developers who own those properties or the builders themselves want to get out of the higher-end, and so they call us and ask us to buy their lots.”
Often, these lots are older stock, small batches, or already passed over by other builders. “They won’t come to a small guy like me if they have big builder deep-pocket kind of money,” Rice explains. “We realize where we stand on the pecking order. You don’t get it until everybody else has turned it down.”
New and Future Growth
As of 2017, the San Antonio market has grown back to around 10,000 new housing starts each year, with an average of about 8,500 new starts over the past five years, luxury and market-rate alike. Most of the older, pre-recession lots have been absorbed, and the market’s developers are delivering about 10,000 new lots per year on average.
As a whole, the San Antonio market is looking up and many builders—large and small—aren’t having much trouble finding new lots.
“We have a lot of builders in the market, so that makes it competitive for lot supply,” Inselmann says. “From my evaluation it looks like a majority of builders have a pretty good level of lot inventory, both what they have developed on the ground right now and what they’re looking at producing or getting delivered to them this year, next year. Could somebody say they don’t have enough? I guess they could. But for the most part, we’re five, six years into this cycle, and they’ve been all working very hard in order to improve their land position.”
As for Whitestone, Rice categorizes 2017 as an opportunity for sales growth. The builder has closed on four homes so far this year, with over 40 more closings in the works. This represents a 66% increase over last year, when Whitestone closed on 29 homes during a period of “contracting for new communities and a bit of a reset on sales,” Rice says.
The builder’s newly bolstered lot supply and recent success in sales has allowed it to set its sights on further growth. Rice says the company has several deals underway for land acquisition in the Austin market, and he considers his firm well positioned to take advantage of the market opportunities available there.
“[Expansion] has been more of a function of having the right personnel, which we really have now,” he says. “It provides an opportunity for us to find a spot.”
