Capital

Bubble Rap: It's Not What's Next That Matters Now; It's Who Can And Can't

Who's right about which prediction is exactly the focus area strategists would do well to dispel from their priority agendas right now. Instead of focusing on a bubble, redouble commitment instead to becoming listeners, learners, understanders of what customers feel, think, fear and do.

John McManus May 28th, 2021

The issue now, for residential builders, developers, investors and partners, is not "who's right about what's coming next?"

Price tolerances -- at least in some markets and submarkets -- have peaked. Uncle Sam's firm helping hand on the mortgage interest front may even have stretched that elasticity too far.

St. Louis Fed economist William R. Emmons notes, "House Prices Surpass Housing-Bubble Peak on One Key Measure of Value."

Here, CNBC's Jeff Cox reports that Dallas Federal Reserve president Robert Kaplan's vibrating as well about an overheated housing market, telling CNBC that "the $120 billion a month in asset purchases may be having 'unintended consequences.'”

"At this stage as opposed to a year ago, these mortgage purchases for example might be having some unintended consequences and side effects, which I think we need to weight against the efficacy,” he said during a live “Closing Bell” discussion. “So, I think some restraint and moderation as we move toward weathering this pandemic, I think, would be useful in mitigating some of these excesses and imbalances.”

Who's right about which prediction is exactly the focus area strategists would do well to dispel from their priority agendas right now. Instead of focusing on a bubble, redouble commitment instead to becoming listeners, learners, understanders of what customers feel, think, fear, gravitate toward, and, ultimately, do.

Here's how housing analyst and advisor John Burns focuses a lens of clarity on price elasticity, expectations, and cyclical risk:

NOT TRUE: Home prices cannot fall because supply is low. This is a very dangerous conclusion I am seeing far too often. Demand needs to stay strong. Affordability needs to be maintained. If either erodes, the number of homes available for sale could quickly skyrocket.
TRUE: We have an affordability problem for a rising number of people who are unwilling or unable to relocate.
NOT TRUE: We have an affordability problem for people who can relocate to an affordable area where they will also be happy. It is actually possible for many urban renters to become homeowners in more affordable areas and see their monthly housing costs decline.
Image: Courtesy of John Burns Real Estate Consulting

The critical consumer insight, research, and analysis job for developers, investors, and builders, right now, has to do with a great rotation -- or not -- of people who can and will pick up and move for the blend of livelihood and lifestyle.

And who can't.

Who can't move is equally important for people in housing to learn now, as housing opportunity includes fewer people, and eludes more.

Join the conversation

ABOUT THE AUTHOR

John McManus

John McManus

President and Founder

John McManus, founder and president of The Builder’s Daily, is an award-winning editorial, programming, and digital content strategist. TBD's purpose is a community capable of constant improvement.

RELATED

A Price-To-Market Chapter Begins To Reset The Back Half Of 2022

Just the way builders revolutionized a tech-enabled, friction-freer homebuyer experience in Spring 2020, they now face the need to transform their product development and build-cycle for a higher-interest rate new normal.


The 'Everybody's-A-Winner' Era In Build-To-Rent Gets A Stress Test

All single-family built-to-rent deals, communities, and prospects for success are not equal. As the for-sale market gets tougher, product, location, process, and pro forma will create BTR winners and losers.


Banking On Uncertainty, Builders Brace For Rougher, Iffy Conditions

Taking a page from past cyclical practices more builders, brokers, sellers, and investors engage in 'banking' lots for demand conditions that could go either way.