After the housing crisis, most builders began to focus on luxury homes in high-end neighborhoods, but one builder in Texas is targeting a completely different market. According to an article in the Wall Street Journal, LGI Homes which is based in Houston is targeting first-time buyers with its entry-level homes.
The company focuses on building starter homes, often in suburbs that are well outside the cities. This year it expects to see growth levels of 24% for its new developments. This is the fastest rate within the publicly traded homebuilding industry in the United States. According to the article, its success seems to be due to LGI’s marketing campaign. Every week it sends out 400,000 flyers to rental units and apartment complexes located within a 25-mile radius of new developments. These flyers entice prospective homebuyers with low monthly mortgages and by pointing out a down payment may not be required. This is because prospective buyers may qualify for rural homebuyer programs from the US Department of Agriculture, or they may be able to get a loan from the US Department of Veterans Affairs. Interested parties simply have to call a free phone number to schedule a viewing.
Apparently, the company closely monitors the number of calls received from these campaigns, as well as how many result in viewings and contracts, and how many of these contracts lead to closings. They believe this entry-level market has a more consistent level of demand and that most people will look to go from renting to homeownership at some stage during their life. Quite often this decision will be based on a personal lifestyle choice.
LGI has taken the approach of frequently buying cheaper land in the suburbs, in areas where other builders haven’t chosen to venture since the market recovery. Its average sale price is $197,450 which compares very favorably with larger builders. Its experience has shown that buyers looking for a lower-priced property are willing to compromise with longer commute times. Since the financial crisis, construction of single-family homes is still nearly 30% below historical averages, with a dearth of first-time buyers being cited as a prime reason.
The company was originally founded 13 years ago and is one of the few larger homebuilders that have continued to grow during the housing crisis. This is partly due to its location in Texas as this area was less affected by the crisis than other markets such as Florida or Arizona.
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