Car buying has changed over the years. Gone are the days that the only thing standing in the way of a buyer and a new Ford (NYSE:F) was the sticker price. Today's car buyers are savvier. The focus has changed from sticker price to the true cost of ownership. This is because the factor that's increasingly making its way into the consideration is fuel efficiency.
The new car buyer
No longer is the speed from Zero-to-60 what matters most. Instead, consumers are more focused on how close to zero it will cost to fill it up each time. Fuel efficiency rules the day, and automakers like Ford are increasingly building cars that get better gas mileage. That's because for today's car buyer the cost equation has shifted to sticker price plus fuel costs.
So, for example when buying a new Ford Fusion Hybrid a consumer will save $5,500 in fuel costs over five years compared to the average new vehicle. Because of this consumers can budget for annual fuel costs of around $1,000. So, while the car might cost more, its total cost of ownership could be much less.
Changing the equation
Home buying, however, hasn't changed for most Americans. We look for what appeals to us, that's in our price range and as close to our preferred location as possible. We see the cost of ownership being price, plus insurance and taxes. What hardly ever enters our mind is energy, but it should.
Today's average new home is at least 30% more efficient than a typical resale home. Many of the nation's top home builders like KB Home (NYSE:KBH), PulteGroup (NYSE:PHM) and Beazer Homes (NYSE:BZH) are building homes that can be as much as twice as efficient as a typical resale home.
For example, an average home built by KB Home last year earned an average HERS Score (think MPG for a home) of 68. This compares to 130 for a typical resale home and 100 for a typical new home, with lower being better. To put that number into perspective, if a typical new home has an average energy bill of about $100 per month, a KB Home's total monthly energy cost would be about $72 per month. For comparison's sake, a typical pre-owned home would cost $139 per month, meaning a KB Home could save a buyer $67 per month.
It's the same story over at PulteGroup. The homes it builds are much more efficient than average resale homes, as well as those built by many of its peers. The company goes out of its way to seal up the smallest of holes or add extra insulation to ensure that energy isn't lost. Many of the things it does will go unnoticed by home buyers until they get their first utility bill.
This is why Beazer Homes CEO Allan Merrill recently spoke about the need to change a homebuyer's mind-set when looking at the cost of a home. He said that traditionally a home buyer will consider P.I.T.I. which is principal, interest, taxes and insurance when considering the cost of a home. He suggested that the conversation needed to be expanded to P.I.T.I.U. with the "U" standing for utilities.
When visiting a recent Beazer community this expansion of the conversation was very evident. In the showroom Beazer had a poster on the wall for each of the floor plans in the community. Not only did each plan show where the bathrooms were and the square footage, but each floor plan showed an estimated monthly utility bill.
Just for some perspective, the plans in my area all showed estimated utility bills that were about a third of what I'm currently paying for nearly twice the space. What that meant is that on my budget I would have more money left over to invest into other things, such as that gourmet kitchen my wife wants, just because the utility costs would be lower. That's all because the air that we are paying to heat or cool down the home isn't running out of some unsealed crack as fast as it's being produced.
While it's easier for a new home to achieve such efficiency, this isn't a signal of the end of the existing home market, but maybe more of a wakeup call. Homebuyers should consider energy costs when buying a home, even if it means investing to make changes to an existing home in order to better control its utility costs. If more homebuyers would buy a house like they buy a car we would be doing a much better job at cutting emissions and reducing our foreign energy imports because we'd be wasting so much less energy.
Where to invest those savings