Wade Jurney on building entry-level homes in this market

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Wade Jurney, executive chairman of National Home Corporation, about the challenges and opportunities of building entry-level houses in this market.  Related to this episode:  California starter home laws reshape small home building https://www.housingwire.com/articles/california-adu-boom-starter-homes/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  More info about HousingWire https://lnk.bio/housingwire  Top 5 Trending:  Mortgage rates cool down in response to AI stock sell-off, lower Treasury yields https://www.housingwire.com/articles/mortgage-rates-dip-treasury-yield/  Elevated rates just made it harder to build more homes in America https://www.housingwire.com/articles/builder-sentiment-2012-levels/  Michael Bloomberg: To ease the housing shortage, empower mayors https://www.housingwire.com/articles/michael-bloomberg-to-ease-the-housing-shortage-empower-mayors/  Side’s new Google deal with HouseCanary could give its agents an edge in listing visibility https://www.housingwire.com/articles/side-housecanary-google-listings/  Can mortgage rates get under 7% for the holidays?  https://www.housingwire.com/articles/mortgage-rates-below-7-holidays/  Want more from Sarah? Don’t forget to subscribe!  The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate.

Transcript

00:10Welcome, everyone. My guest today is Wade Journey. He's the chairman of the board

00:15of National Home Corporation. We're here at our Homebuilding Summit in Dallas. And

00:20Wade, welcome to the podcast. Thank you so much. I'm happy to be here.

00:24Happy to have you. So you and I talked a year ago, the first time we hosted the Homebuilder Summit,

00:28and boy, a lot has changed since then. You were just on stage and you had some really

00:34interesting things to say. So I just wanted to dig in. First, maybe tell us a little bit about

00:40your company and who you focus on. Sure. So the National Home Corporation is headquartered in

00:46Houston. We build in Texas, Oklahoma, North and South Carolina, Alabama, Georgia, and Indiana

00:57currently. So we have quite a wide geographic reach. But we only target the starter entry level

01:06segment. In fact, I think we have the lowest average sales price of any building in the country. Our

01:14average home price is $225,000. Ranges really anywhere from some of our homes go down to $150,000,

01:23$160,000, up to probably just around the $300,000 mark. When you said that, so you said that from

01:30stage, you know, here's our average, you know, you could see people in the room kind of look around

01:33and be like, really? Right. How do you do that? I mean, some of their land cost is that much.

01:38Yeah, I know. So it's really what differentiates us. I mean, it's just, it's been my life's battle to

01:46keep cost of homes down. And I'm of the thought that homes in the United States cost too much money

01:54nowadays. I feel like homes, I feel like everything's overpriced, but homes in particular.

02:00And so, you know, you know, our mission statement is to, you know, make America affordable by keeping

02:09costs low. And the reason we put keeping costs low in there is because that's what we do every day.

02:15You know, it starts with really the product. We value engineer our homes down to the nth degree.

02:20You know, I'd like to say we know exactly how many sheetrock screws, you know, I kind of joke and

02:24say

02:24that sometimes, but it is, you know, we're itemizing everything that we can. We don't offer options or

02:32color selections and we really build the same core home in every one of our markets. So therefore we can

02:39dial in much better. You know, we have one window size in all of our homes. All of our homes

02:44have

02:44the exact same kitchen. Interior colors of all of our homes are the same. We have one light skew. We

02:52use, you know, six inch LED pucks throughout. There are no fixtures. We despect the homes to keep them

02:59affordable. So, you know, we don't add a lot of bells and whistles. We don't have the fireplace or,

03:07you know, some of the things that custom home builders do. In fact, we even in the kitchens

03:16and baths, we're still doing laminate tops, vinyl flooring. And, you know, we do that because,

03:23you know, for according to an AHB, you know, you've heard me say it before for every $1,000

03:29that a home price goes up, like 114,000 people are priced out of a new home. So we always

03:36have that in

03:36mind. So when someone says, oh, this is only $50 more, well, you just displaced, you know,

03:44X number of people from being able to afford a home. And so we build in mainly tertiary markets.

03:51So we're not in the major MSAs per se. We're generally, you know, either 30 or 45 minutes,

03:58maybe even an hour outside of a Dallas or Atlanta or Houston or Charlotte. But, you know, sometimes

04:08we'll snuggle in close. And then sometimes we're in what I call double A cities. Here in Texas,

04:15Aveline's a good one. Tyler's a good one. You know, it's a standalone city, but it's a city where

04:20there aren't a lot of nationals building. And so we're able to go in and structure deals to where

04:25we can purchase lots at decent prices and decent terms, you know, in order to, you know, make our

04:32homes affordable. Well, let's talk about lot size and then on the square foot of these houses. Is it,

04:37you know, what, what is your typical square foot on these house? So we have homes as low as a

04:44thousand

04:45square feet. Okay. And we actually have a kind of a mega value series that goes up to 4,000

04:54square

04:54feet. So when we try to be the price leader, not only do we try to be the price leader

04:59in the absolute

05:00number of the price of the home, we also like to be the lowest price per square foot. So, you

05:06know,

05:07there are a lot of families, large families, particularly here in Texas that want square

05:13footage. And you know what, that big, you know, 4,000 square foot econo box that we build,

05:19we can sell it for just under 300,000. So that's $75 a square foot. A lot of builders can't

05:26build the

05:27home for $75 a square foot. We include the lot and the home and our profit at that. It's just

05:33because

05:34it's so value engineered. It's, it's so efficient, you know, and we try to take that efficiency

05:40elsewhere, you know, into our overhead and our soft costs and our finance costs and all that kind of

05:45thing. Uh, so we have a wide range in terms of square footage lots. We try to get as small

05:51as

05:51possible, the smaller, the better, uh, because we don't develop lots. We only buy finished lots. So

05:57a lot of times we're kind of at the mercy of whatever we pick up out there. Um, but it's

06:03always

06:03better when we get a smaller lot because it's just usually more efficient and more affordable and it can

06:09help us get our home price down. I just think that, um, kind of efficiency is incredible and, um,

06:15really speaks to your mission because you've got to be, like you said, you have one window size,

06:20you have one door frame, you have one, whatever, so that you can just keep doing it over and over

06:24again. Yep. Yep. Let's talk about this market, right? Um, so we talked a year ago, it, you know,

06:30it wasn't a great market, but, um, uh, rates had come down about this time last year, started 2026

06:36with some optimism. I think everybody did since then. It's been, it's been tough. Tell me what

06:41this looks like for, um, a builder, uh, building affordable housing, not affordable housing, uh,

06:47building entry-level homes. Uh, so I feel like there's been a little further deterioration in

06:53the market since we spoke a year ago. I wasn't optimistic. I have not been optimistic, uh, because

06:59I don't see what is, what's out there that is going to propel this market forward, you know, other

07:05than I can, I beat it like a drum. Our home prices need to come down. You know, we can't

07:11think that rates are going to come down. I think the historical 30 year average is somewhere in that

07:167.5 or 7.8 range. We're still low. We're still lower than the historic average, you know? And so,

07:25um, you know, when people say, oh, you know, interest rates are a problem. I just disagree. I think that

07:31the home price is the problem. Prices are the problem. And it's not only homes, it goes to

07:35groceries and I, I don't know how people afford to live nowadays, honestly. I mean, I go to the

07:41grocery store and I'm shocked. I feel the same way. I'm shocked at what things cost, uh, gas go,

07:50I mean, you know, it's just amazing. Uh, and wages are going up so slow and the price of homes

07:56are kind

07:57of, kind of remained the same for maybe two or three years. Now I feel like, like I said on,

08:02uh,

08:03the panel earlier, I feel like, uh, we're bouncing bottom, but I feel like we've got a couple of years

08:08of bouncing bottom to go. And so, uh, you know, and, you know, but you know what, we're committed

08:15to the segment. We're committed to, you know, what we do and we're going to take the opportunity during

08:21this, you know, quote unquote downturn to grow. You know, we started the National Home Corporation,

08:28uh, on October 21st of 2021. So it was five years ago tomorrow. And, you know, we set out to

08:36create

08:36a national brand, a national affordable home brand. And so in some ways, a soft market helps

08:44propel us a little bit, uh, because it gives us opportunities that we would not have otherwise

08:49gotten. We went through this same kind of curve. I mean, we had a little more drastic downturn in 08,

08:55but kind of this bouncing along bottom of 2009, 10, 11, 12, and then just kind of a gradual

09:02climb out. And I just felt like that's kind of where we are. I felt comfortable back then. I feel

09:07comfortable now, you know, it's nice to be able to, you know, supply homes at that price. It's just,

09:16it's, it's, you know, it's a noble, like Larry Webb used to say, it's a noble profession.

09:21So even if you're not making much money, it's, it's like, you know, we're doing a good thing

09:27for society. No, you are. Um, you made a point on, um, on the panel that, you know, because you're

09:33not, you know, maybe profits aren't, you know, you're not rolling in the money right now. Um,

09:37and with your segment, it's really about volume. And so you're really focused on market share.

09:41And I think that that's something that everybody out there listening can, can think about that,

09:45like in this kind of environment, how do you, how do you survive? How do you thrive? And,

09:51and what you look at is like, we're going to take this opportunity to get more business.

09:55That's right. That's right. You know, I chose this industry because my father was a builder

10:01and I've never known how to do anything else. I guess maybe my father chose it for me. Um,

10:07but you know, we're after 40 years, I'm 55 and, uh, I started on my dad's job site when I

10:15was 15.

10:15So I'm 40 years in and you know what, you just know that it's a cyclical business and it's going

10:20to come and go. And you know, what are you going to do? You just do the best with what,

10:25you know,

10:26what, and like I said on the panel this morning, there are a lot of benefits to a, you know,

10:31a softer

10:31sales market. You know, it's easier to get labor. It's easier to find lots. Uh, it's easier to hire

10:38good talent. You know, you can take the opportunity, like Natasha said, to refine, you know, your

10:43processes. Uh, there are all kinds of good things you can do in a, in a softer sales environment.

10:49When you look at what, um, other builders are doing and, and everyone kind of has, you know,

10:53they're, they're the distinctives about them, but what do you think that, um, what you've learned,

10:59um, delivering the kind of product that you do? What do you think, especially on that efficiency

11:04side, where do you see that maybe some other builders could learn from that?

11:09Well, I hate to speak to other segments because I don't know what their customers want. You know,

11:16uh, I was just sitting with, um, a builder, uh, that builds on the East coast of Florida and they

11:24do

11:25a 55 plus, uh, you know, kind of like what Dwight was saying that, you know, heavy amenities and

11:31things like that. And I just don't know, you know, I, I would speak out of school if I tried

11:37to

11:37give those guys, uh, you know, advice or some pointers. But I think even when you, even when you

11:46do target, you know, to move up or the second time move up, or even the active adult markets,

11:51there's still some, uh, components of efficiency and so forth that you can bring. And I think that

11:57those builders have, uh, you know, have incorporated that like Dell web, for example,

12:01even toll brothers. I mean, I look at toll brothers homes and I, I look at it compared to a

12:07custom

12:07builders home. I'm like, well, that toll home looks a lot more efficient than that custom builders

12:13cut up roof lines and that's in that. So these guys aren't ignorant to, you know, he's a toll brother

12:19guy, even though they're at the end of this other end of the spectrum from us, you know,

12:23I think they know what they're doing, you know? Um, you know, something that you said that really

12:27struck me as you're like, you don't have to do focus groups. It's like you, you look at the data

12:32of like what's selling, what, what's selling tells you what the buyer wants. Because I think there are

12:37people who are like, Oh, well, you know, we've heard forever. Well, people want bigger homes,

12:41the square footage you're talking about, or, you know, um, I mean, if you watch house hunters like I do,

12:46or any of those HGTV, it seems like people are like, even in their starter homes, they want stuff

12:52that used to be for more like a luxury home, right? Like I want granite, I want this, I want

12:56that. So

12:57how do you, how do you know what to build? Well, it's easy for us being the price leader and

13:02only

13:02the person with the price leader strategy can adopt that simple philosophy of, you know, prices where we,

13:10that's our hammer. And so while I want to give our customer solid surface tops, I know that solid

13:18surface tops in our kitchens cost $2,000 more than laminate. Okay. So there we go again, you know,

13:27if it's $2,000, uh, displaces 200 and, you know, 50,000 potential home buyers. And by the way,

13:34they are our exact 250,000 home buyers, because they're the ones that are on the line that are

13:40getting knocked out of the home buying process. And so, you know, we always go back to price

13:48sales. We always go back to price. We don't try to differentiate ourself on school district or,

13:54you know, standard features or, or anything like that, because, you know, bottom line is,

13:59and a lot of people do this, uh, and we say it, uh, listen, if you want solid surface tops,

14:04you know, put them in after you close, kind of like, you know, McDonald's, you don't put pickles

14:10on the burger or, you know, you know, you know, we're, we're, we're not semi-custom or custom at

14:18all. And we really can't be because customization not only costs more in terms of the actual spec

14:24that you're putting in the home, but the management of doing all that stuff on the overhead side,

14:28when you have a standard product that you're doing over and over, you can work on a shoe

14:33string overhead budget. So to speak, we don't have a ton of people in our purchasing department

14:39doing special, you know, uh, uh, pricing options. And, you know, it's just, uh, you know, it's just

14:47what you see is what you get. So we always, it's easy for us because we always know where to

14:52position

14:53ourself in the marketplace. If the lowest person in the marketplace is selling a home at $210,000,

14:58we want to be at 200, you know, whereas other builders have a more difficult task. They've got

15:04to figure out what they've got to climb in the mind of the consumer. Like you were alluding to

15:07and say, well, Pulte's here and Lennar's here. I need to, I need to position myself in this little

15:13slither of the market to pick up this buyer or that buyer. We never have that problem. We never

15:19have to soul search. We know exactly who we are. What kind of, um, community size do you do? You

15:28that means you're, you're already shoehorned into whatever area you have. So what does that

15:32usually look like? It is across the board. We usually don't buy anything less than say 10 or

15:3720 lots. Uh, but we, we would prefer maybe a 50 or 60 lot because, you know, when you go

15:44in a 50 lot

15:45community, uh, where you have a takedown agreement, you don't have to put up big deposits on. And so that

15:51helps mitigate our risk on the balance sheet. Uh, but we will do, uh, neighborhoods and we have some

15:55neighborhoods that are, you know, a hundred, 200 lots. Um, in Florida to be the price leader,

16:01uh, we have to build on scattered lots. They're like individual lots. I know it really complicates

16:08the operational process. Uh, and that's the reason, even though I live in Florida and our CEO lives in

16:15Florida, um, we started in Texas because the availability of lots here, you know, and the

16:22affordability here, I mean, Texas and Florida, both are great affordable States and you know

16:27what? They're great States to live in. Uh, maybe that's the reason everybody's moving down here.

16:32Well, I I've been here a long time. So I would say, and I've bought a lot of new build

16:36homes.

16:36So, you know, and, and my first home, um, we were young, we had little kids and we were going

16:42for that

16:42big box. Like I needed to fit four kids in this house and it did not have any upgrades on

16:47anything

16:48because it's like, I don't care about that. I need to put a bed somewhere, you know,

16:51it was Pulte. I think it was Pulte. It wasn't Syntex. Nope. Cause you know, Syntex did a lot

16:59here in Texas back before Pulte bought them, I guess. Right. Yeah. This was a long time ago too,

17:05but, um, but you know, I've been that entry level buyer. I've been the move up buyer. I've been the

17:08second home buyer. Now I'm the move down buyer. So I feel like I've, uh, experienced that. And,

17:13and a lot of those have been new builds because I am in Texas. I'm in the Dallas area.

17:18And there's just, that's where the affordability is. So we were talking on the way over, um, we

17:24walked over from the conference to here and, you know, I said, gosh, you know, when, when

17:27you have, when you, um, have smaller profit margins and you're, you know, you're building

17:33entry-level homes, how do you, it seems like you have to do a lot of things right in order

17:38to make that work. And what did you say? Well, let me go through a mathematical problem

17:44for you, uh, just to kind of accentuate how cost sensitive we are. Okay. Uh, what I mentioned

17:54on the panel was our problem nowadays are buying lots at affordable pricing because the lots

18:01that we're buying currently are from developers who bought the land in 2021, 22, 23, when the

18:06market was still hot and property values were high and they're baked in at those higher prices.

18:10And so we have to put out the way that we figure out what we can pay for a lot

18:15is we go to the

18:16market and see, you know, what homes are selling for. We, we really are having to, uh, comp our

18:24homes against used homes currently. Uh, and that's okay. You know, um, cause our customers really

18:30can't play, pay a major premium for new overused to begin with. So we go in and there are lots

18:36of comps so we can determine pretty much where we can sell our home at. We simply back into

18:42the math. We say, if we want to get X amount of, uh, you know, profit here and we know

18:47it

18:47costs us this, this is what we can pay for the lot. And the, the lot sellers might be asking

18:53$80,000 a lot. And our average, uh, lot costs is around 60,000. There's a $20,000 gap there.

19:02And like I said, just like Lenar nowadays, I mean, our profit margins are down in the,

19:07uh, mid to upper teens. Our end of Q3 financials just came out about a week ago. I think we're

19:15sitting at 17.2% gross profit. Well, our overheads around 13 or 14. So we are at a 4

19:21% pre-tax net

19:234% pre-tax net on a $225,000 is $9,000 a home. Wow. That's what we make on

19:30a home before taxes.

19:31Now think about, just go back to that lot. The sellers want an 80,000, but we're offering 60.

19:38There's no, there's no, uh, no surprise that, uh, you know, we're only getting about 10% of the

19:45lots we're going after. And the, the, the comment I always hear from the lot seller is we've got more

19:50in it than that. Well, I mean, I, I hate that, but it's just, we can't buy your problem, you

19:56know?

19:56And so, but go back to that 80 to $60,000. When we've got a $9,000 profit margin, we

20:04can't,

20:04the, the, if we paid, what's the math there? If we paid 59,000, we'd break even. Is that right?

20:11And I'm sorry, 69,000. If we even tried to meet them in, we can't even meet them in the

20:14middle.

20:14There's no room. And then you have to, on the construction side, you have to keep your variances

20:20at nothing. Right. Cause you know, uh, but you know, being a volume builder, you can do that,

20:26especially if you're buying good padded lots, which was what we look for. Uh, but that's just

20:30an example of how tight and how tricky it is because the lot's really the main cost of that house.

20:39It's really incredible. When you get down to that kind of numbers of when you think about all the

20:45things that could happen that could change that number in the construction process. It's not like

20:49a, you know, push button, get whatever. It's like, this is an actual physical, uh, asset that you're

20:55building that is then, you know, subject to all sorts of things. Do you guys, have you, have you had

20:59a

20:59problem with labor this year or? So I'm no longer the CEO, but from what I hear from our CEO

21:07is that

21:08I'm surprised that we actually are having some issues with, um, with, with, uh, you know,

21:15ice, uh, showing up on the job sites. Uh, so we have an availability of labor because of the

21:21slowdown in the market, but there, then again, you know, that's counterbalanced by this issue. Um,

21:28you know, a lot of our, uh, workers, especially here in Texas and Florida are Hispanic. And, um,

21:35you know, I talked to some of our subcontractors that say that their, uh, guys are picked up on

21:42multiple occasions and they keep them while they, uh, make sure that they are legitimate and then

21:49they'll, you know, but they keep them all day and then they'll let them go and then they'll come back

21:53and come up the next week. And so there, this is just what I hear from subcontractors and our CEO

22:00and COO, but I don't think, I don't think it's as bad in some places, even in the Midwest,

22:07where we go in Indiana, we're having some of these issues. I've heard it's worse in the Rio

22:10Grand Valley. Wow. Some of my friends that built in the Rio Grand Valley say that it's kind of,

22:15it's, it's, it's, it's hard to get a home built down there. It's just another variable in this very

22:20challenging year. Maybe. I know. Yeah. Sounds like just another kid on the block.

22:26Wade, you're such an upbeat guy. You said earlier, you weren't optimistic about, you know, maybe the

22:31prospects of like, oh, you guys are going to, you know, make this kind of profits, but in general,

22:34you are, uh, an optimistic person. Yeah. Where does that come from? Like, how do you stay, um,

22:40positive in this market and, and be like, I mean, you've even said, we're like, we're going to grind

22:43it out for the, however many, two, three years while things kind of take an upswing. What does that look

22:48like? Well, the grinding's okay. You know, uh, you're always fighting something. It's like I mentioned

22:53earlier, you know, when I got back into it, after being on the sidelines for two years during a

22:58non-compete, I sold my last company, the Century communities and had two years to kind of hang

23:03out. And that coincided with the pandemic, which was great. It just happened to be. Uh, so I was

23:09out of that craziness. You know, uh, what I heard from one of our bankers that we went to is,

23:14you know,

23:15all of our builders have 99 problems, but selling houses isn't one of them. And I pointed out now

23:21that's the problem, but we have 99 things we don't have to worry about anymore. So it's always

23:25something that you're, you know, so it's just like, pick your battle in terms of, uh, you know,

23:31optimism. I, it's just, I was born with, you know, well, good thing. And I enjoy building homes,

23:36you know, even when we're not making much money, it's again, it's a noble profession. It's fun.

23:41It's great, you know, and, um, and you know, good times are ahead. So we got that to look forward

23:47to,

23:48and I'll be here for that unless something tragic happens. You know what? I appreciate

23:53that so much, Wade. Thank you for being on. Thank you for sharing, uh, really candidly about where

23:57you guys are and, and laying it out and why it's still worth it for you. So really appreciate it.

24:01Yeah. Thanks for having me on.

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