Another good year for home builders could be riskier for the long-term financial health and well-being of the average going concern than one with more obviously adverse market conditions.
Here's why.
Expectations in 2018 for new home sales, permits, and single-family starts growth--ranging from 7% to 10% among most economists and housing experts--are bullish for the coming 12 months or more, especially for builders whose product and pricing mix have shifted toward lower-tier entry-level communities and home offerings.
Still, even as these metrics signal a continued healthy "next leg" of a recovery, with further headroom for a return to historic norm levels, two menacing forces should attract both focus and action from among the home building and development business community's leaders.
One is our tolerance of unacceptably slow progress of construction productivity as measured--apples to apples across industries and economies--by real gross value created per hour worked. The other is in the rate of change--increasing--among households "priced-out" of participating as home buyers in local housing markets vs. being priced-in to participate in them.
We so often cite three dynamic--challenging--conditions as barriers that block productivity gains--unpredictable and unmanageable costs and time-loss tied to labor, lots, and lending. Each condition--at any point in time--is either in a state of worsening (getting more volatile, costly, or unpredictable) or simply or in a paused stasis, but likely to worsen at some later date.
Builders and their partners whose experience is confined to construction sector business trends in North America have, to a significant degree, grown to accept these ever worsening conditions as insusceptible to change. In fact, many builders have grown comfortable with conditions that squeeze the industry on the labor, lots, and lending front, because those organization can leverage the pain of the majority of builders to their own gain and opportunity.
This is complacency. The degree to which you believe these conditions can not and will not change defines an industry and a moment where a player from outside the industry may disrupt the business model, and transform--unalterably, profoundly, and forever--how every other company can prosper or not in the future.
Do not accept "new normal" conditions around labor, lots, and lending. A passive posture might seem like a comfort zone as long as you can pass added costs along to home buyers, but don't assume that that will be the case for much longer.
Expect someone--either from the ranks of builders, or from among companies the likes of Alphabet, Amazon, Apple, or Tesla, whose core interests and consumer groups encompass community, energy, transit, retail, distribution, and housing--to solve for the inertia in productivity the construction business community has shown in comparison and contrast to other manufacturing, business, and economic sectors.
Expect a break-through rather than to turn a blind, skeptical eye, and say, "we've seen it all before, where tech and energy companies got ham-handedly into the home building and development business and went nowhere. It's not going to happen this time either."
Right.
Don't count on it. Not if you want to be around in 2020 and beyond.
One of the ways a strong solid market almost always masks lurking danger ahead is in how land investments occur, customarily 18 to 24 months ahead of when they're due to come online as a new subdivision or community.
This is why it's timely that BUILDER sibling Metrostudy has released a whole new level of precision, real-time efficacy, and decision-support for its hyperlocal data sets on demand for home sites in America's leading residential new construction markets.
The unprecedented combination of the two complementary research methodologies: the new sales contract and Metrostudy’s industry standard field survey methodology, coupled with its deed data, answers all of a client’s supply and demand-side data needs, eliminating any need for the industry to use limited-in-scope and less robust data sets provided by competing firms. Metrostudy’s rigorous approach, built on its 40 years of research experience, provides accurate and comprehensive coverage by tracking the monthly sales and traffic numbers for builder projects around the country and includes real-time pricing updates along with incentives, floorplans and elevations.
From community planning to closeout, Metrostudy’s supply and Demand Insights datasets are complete, aligned, and consistent providing market clarity in a single user-friendly format. Clients can get the answers they need without friction; there is no need to translate the data to get to a single meaning or use multiple platforms to obtain critical and informed insights necessary for key business decisions.
Clients now have critical, real-time, insights into their competitors’ strategies and local home buyer preferences, including:
- Competitor pricing movements and sales trends
- Inventory spec levels
- Product mix analysis tools to ensure their strategy aligns with shifting market conditions
- Insight into home buyer demographics, preferences, and identification of potential buyers for targeted marketing
What builders do in 2018--not building and delivering new homes to those who're clamoring to buy them this year, but, rather, in buying land, re-engineering their business models, and taking proactive action on removing costs and generating more value per employee hour so that more people can be priced-into the market than priced-out of it--will matter a whole lot when it comes to seeing who's still around and still viable in 2020 and 2021.
We certainly hope that means you. A good year is the year to make necessary changes in preparation for when times are tougher. Don't wait. Complacency is the enemy.
