Legendary coach Pat Riley once said

“There is no status quo. You are either getting better or worse.”

This seems to be especially true of our economy. In the 80’s we saw run away inflation. In the 90’s we had deflation, and the burst of the internet bubble. Now after the turn of the century, we have worries about inflation leading to the burst of the so called housing bubble. Since 2001 housing prices have increased and the demand for housing has increased. In 2005 the Federal Reserve decided that the party was over and started a long cycle of interest rate increases. This and other economic factors have lead to a pull back in housing prices across the country. Add to this mix the recent upheaveal in the mortgage industry and it is not hard to see how the housing industry finds itself in this current tail spin downward. The National Association of Home Builders released its report on housing starts for September, and the picture it paints is grim. You can view the report in detail here. The report states that the earliest it sees a turnaround in housing starts is 2nd quarter in 2008. For builders this poses the dilemma of how to reduce their current inventory without further deflating their already reduced prices.

One significant source of assistance is for builders to rely on their current homeowners for help. The word of mouth referral is still one of the most effective selling tools available to builders. If builders can harness the satisfaction of their current customers and turn them into self-marketers for the builder, the builders may be able to shorten the current downturn. Many builders have started focusing on providing incentives to their current customers as opposed to further price reductions. This is a far more effective process because price reductions can actually reduce the value of current customers homes. By holding pricing and providing incentives for customers to refer their friends, the builders create a win win situation.