Leadership

What TBD's First Snap Survey Reveals About Homebuilders' Character

It goes distinctly with the character of people in homebuilding to consider challenges in the here and now as exactly what they signed up for and why they're here.

Leadership

What TBD's First Snap Survey Reveals About Homebuilders' Character

It goes distinctly with the character of people in homebuilding to consider challenges in the here and now as exactly what they signed up for and why they're here.

July 28th, 2022
What TBD's First Snap Survey Reveals About Homebuilders' Character
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Memorable movies have that dialog line that not only goes viral but embeds itself in everyday usage as the one and only way to say what it says.

If Anthony and Joe Russo's "The Gray Man," starring Ryan Gosling, manages to stream its way to a rightful place in action-thriller-dom's summer blockbuster pantheon, it's got a dialog line ready for the big job it can do in real life.

It's just another Thursday."

No spoiler alerts necessary. "It's just another Thursday." Saying it stands as a self-evident and self-explanatory beacon for those who live and breathe the phrase's meaning on the front lines of real life. Equally, it serves as a reminder to those who are on the outside looking in who can't help but think, well, how can it be?

For homebuilders, it's literally just another Thursday.

And the thing is, this speaks not so much to their confidence, or a lack of realism – or God forbid, cockiness – but, rather, their character.

Federal Reserve Fund rates – after yesterday's 75 bp hike – are back where they'd been in 2018. Inflation rates are where they haven't been for four decades; house prices are in the beyond; household incomes are up, but not that much, and economic dynamism – that axis of fear, greed, purpose, goodwill, enlightened self-interest, and applied brilliance – abounds.

Headwinds, tailwinds, when you add them up, it's just another Thursday. You can see that in our inaugural rapid-response survey, right here. We asked you about your confidence level in your having hardened your business against threats and risks, however severe, and here's how you respond:

Builders would never, given the choice, have picked this particular set or intensity, or ultimately, duration of problems to have to overcome to make a go of their livelihoods. Still, if this stacks up as the challenge, it's distinctly the character of people in homebuilding to consider this exactly what they signed up for. It all goes with the territory. It's about a determined resolve, in the here and now, to do the job of matching product and community offerings to what people want and need and will pay for and will value.

We had the principal of one of our privately-held homebuilding firms tell us this week:

Will the market deteriorate further? Who knows? But right now we are still selling homes and making money. Homebuilding is always challenging. Inflation, Jay Powell’s focus taking the economy out at the knees, buyer confidence or whatever slew of other issues that could be listed are just the flavor of the week when it comes to challenges to overcome and I guarantee that across the country, that’s exactly what builders will do….they will overcome."

Is this pie in the sky optimism? Hell no! Just how deadly realistic builders are comes through in a riveting view of the intricate calculus many builders are working through as we speak.

The next six months is critical. Typically, when markets slow, the play book is protect the backlog until it closes, then work on remaining specs and dirt sales. Incentives on specs/new sales is often options, upgrades and other things that cloud the impact to the backlog. Which makes sense if you're WIP is 75% sold and 25% spec. Focus on 75%, work on 25% second.
But given our supply chain/lack of cost control, the WIP is the opposite.  Can you protect 25%-40% and ignore 75-60%?  Given supply chain problems and lots of specs, it's hard to use options to improve the value proposition [to drive those new orders]. The cake is baked.  Cycle times are longer, so it will take longer to protect the backlog. Again, with this level of specs, how long can you do this?  You can't allow standing inventory to pile up."

Whatever's a variable cost in the budget is, of course, getting a hard look with an eye toward ratcheting it down at every turn. On the price front, all eyes are fixating on the "he who cuts first, cuts least" mark-to-market maker mantra, and what happens once one or two big players go there.

Right now, it should be regarded as good news that our TBD survey sample of respondents are looking at all alternatives as paths to navigate, but at least for now, the lion's share are leaving marketing and sales budgets off the cutting line.

It's just another Thursday.

Among the 5,000 homebuilding companies – and their owners, founders, principals, key stakeholders, and team members who comprise them – that build 10 or more homes a year, and are the ones that build and sell nine of every 10 homes, that's what it's all about.

What nobody can deny is that most of those 5,000 firms and their leaders and their key staff members were around in 2007 and 2008 and 2009 in some form or fashion and they lived to tell. Yes, hundreds of companies went kaput. Thousands, and thousands, however, found a way to survive, and many many hundreds of them – and their business, capital, land, and distribution partners – did even better than that.

Even then, they positioned their companies for days like those in the past 36 months, where they'd thrived beyond what anyone would ever have imagined in the pits of the GFC [Great Financial Crisis], and ignited more value creation into their stakeholders' respective bank accounts than ever before in the history of the business.

They did it then, and it's many of those same individuals and teams, who – as conditions rapidly evolve – are taking the steps and making the decisions to harden their businesses even more for stresses that many lay ahead.

Clearly, we journalists and pundits, and the data releases, and the observers, and even the investment analysts add up to telling homebuilders and their partners nothing they didn't already know.

We don't need a weatherman to tell which way the wind blows." – Bob Dylan, Subterranean Homesick Blues

You're already out ahead on what the impacts are among people on your backlog. You're probably talking with them every week. You're probably working like the dickens across that tricky calculus that comes with clearing each inventory turn and focusing on the ones coming up next.

Let it be said that on this date, after four Fed rate increases, and after four months of war in Ukraine, and after several months of historical inflation, and after several months straight of declining consumer confidence, our TBD survey tells us:

  • Our builder executive respondents are realistic – to the degree anyone can know or accept what is unknown – about what's going on
  • They are doing what they know how to do to deal with the challenges
  • They're prepared, and financially and operationally fit to survive and once again prosper, overcoming any obstacle currently in their path.

That's not optimism, and it's not even confidence. It's character. In the meantime, it's just another Thursday.

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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.

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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.

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Taylor Morrison's Voyager Push Mints New Supers In Six Weeks

With 21 freshly-trained new graduates of a new construction superintendent training, coaching, and career pathing program, the top-5 ranked homebuilder joins Lennar, Pulte, NVR, Toll Brothers, among others, with homegrown project management academies.


'There're Buyers Out There' ... This Time May Be Different, For Some

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