Insider Q&A: Doug Bauer, CEO of homebuilder TRI Pointe Group

After a sluggish start to the year, the market for newly built U.S. homes is on track to end 2019 on a solid note, thanks to low mortgage rates and a limited supply of properties for sale in many markets

After a sluggish start to the year, the market for newly built U.S. homes is on track to end 2019 on a solid note.

Sales of new U.S. homes have climbed 9.8% through the first 11 months of this year versus the same period in 2018. The increase largely reflects a steady decline in mortgage rates, which has made borrowing less expensive, making it possible for more would-be buyers to afford a home.

A limited supply of previously occupied homes for sale in many markets has also helped to stoke demand for new homes, driving prices higher at a time when new-home construction has not kept pace with demand.

These trends, which economists predict will continue to drive sales of new homes in 2020 — barring a spike in mortgage rates or a severe shock to the economy — have helped big homebuilders like TRI Pointe Group woo more buyers this year.

The Irvine, California-based company, which builds homes in California, Texas and seven other states, has seen its orders for new homes climb about 6% through the first nine months of this year versus the same period last year.

CEO Doug Bauer spoke with The Associated Press about the trends that are driving the U.S. housing market now and likely to shape it in the next few years. Questions and answers have been edited for length and clarity:

Q: Do you expect the U.S. housing market to be stronger in 2020 than this year?

A: Yes. I continue to feel the outlook for our industry, and in particular TRI Pointe Group, is bright. The long-term outlook for the housing industry is strong.

The millennial cohort is entering their prime homebuying age of their lives, so that’s a demand driver. At the same time, us aging baby boomers, of which I’m one, are always looking to downsize. So, there are two big demographics there that are driving demand, which presents to me a very compelling long-term outlook for the industry.

Nationally, the rate of new home construction remains below the historic trend lines, and frankly we’re just not keeping pace with household formation.

And then you have these headwinds: lack of housing supply — none of our markets are overbuilt — regulation and a tight labor market, all kind of buffet what’s going on.

Q: Many builders have begun focusing on the first-time buyer segment of the market. Which segment are you catering to primarily right now, and do you see that changing as more millennials look to buy homes?

A: The entry level and move-up buyer are 80% of our business. We just put more emphasis on design, innovation and the customer experience. And that does entail building higher density solutions, potentially smaller products to become more affordable or a better value in the marketplace.

Q: Has the chronic shortage in skilled home construction labor slowed your ability to build homes, and what do you think could increase the pool of construction industry labor?

A: The labor constraint has definitely had an influence on housing starts and permits throughout the U.S. When we started our company in 2009, the country was building half a million homes and apartments, maybe 600,000. Now they’re building 1.3 million. Labor has grown to accommodate that growth. Has it constrained growth a little bit? Yes, I think so.

We work with all our trades, and as an industry continue to work throughout all the cities and counties in our building industry associations to provide training and education to get young adults into the housing business, and we see that as a big part of our business going forward.

We have to continue to convince young adults that this is a great business to be in.

Q: What are some of the big ways you see the homebuilding industry changing over the next decade? Do you see more use of automation or prefabrication? More smart-home technology?

A: The smart-home technology is going to continue to push into the homebuilding space and how we sell and market our home is going to change, too. Eventually there are going to be more and more consumers who just pick up their PDA or phone, find a house, go visit it and buy it.

The harder part of the equation of technology influencing construction is automating the manufacturing plant outside. We don’t build homes in a plant. That’s going to be a tougher part of the technology curve to accomplish because the United States is broken down into many cities and counties and jurisdictions that have their own entitlement and building processes. It’s such a fragmented business.

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