Here's word from a friend in the field who works with small to mid-sized production homebuilders.

Of my homebuilding clients, all but two are doing very well. Those two are doing okay. No one is in distress."

No one's pretending the current and near-future period isn't tricky or anything close to clear sailing. A day at a time – we hear from the field – business is way better than it was, and it's better than they'd thought it had reason to be.

They'd rather have the uncertainty and challenges of the moment than the lifeless landscape many had prepared to encounter.

Wolfe Research homebuilding and building products and materials analyst Truman Patterson and his team hear roughly the same thing, as their latest Private Homebuilder Survey (May) attests in a few highlights here:

• our Field Research during May revealed traffic/sales remained elevated during the month with certain communities curbing absorption paces again
• our contacts and field work suggest demand remains strong as consumers have (to an extent) adjusted to the higher rate environment, mortgage rates have stabilized, and Builders continue gaining share from the existing home market

The hardest reality, that there are too few home options for too many people, eclipses – so far – all of the dents, bumps, and bruises the economy, the jobs market, the outlook for even higher mortgage interest rates, and almost certainly higher prices throw at it.

After today's expected Federal Open Market Committee pause and plans to continue to raise the Fed's funds rate twice more this year, the stress tests to consumers' household spending, the financial markets run-up, and homebuilding investment are likely to continue try to shock them into capitulation. How else to stifle inflation?

Coming into today’s meeting, it was clear that the Fed would hold steady on an additional rate hike, but would open the door for more in the future. Unfortunately, while inflation has been moderating, it remains well above the Fed’s comfort level,” CoreLogic Chief Economist Selma Hepp says. “Also, the likelihood of another hike or two has also increased given lack of credit crunch the Fed was expecting from the banking sector. As a result, mortgage rates, while still on a gradual decline, are likely to remain higher through the remainder of year.”

While affordability has reared up as a potential demand-destroying specter, demand itself hasn't capitulated. Not enough, anyway, to have set in motion a domino-effect reset of pricing on land, materials, labor, and other inputs that would allow new ground-up development.

Yet.

Builders haven't capitulated – they haven't had to for the most part. Most of them believe that their saving grace – a sustained period of dirt-cheap mortgage rates that only ended a year and a half ago that has locked people into their present homes rather than to add them as new listings – allowed them to dodge the bullet of a downturn.

So, far.

Households haven't capitulated. They're either feeling insulated from the worst of the economic, employment, income, and wealth-effect shocks, or they're still tapping money they'd banked during Covid shut-down days to continue to send resilient signals into the consumer spending factor in GDP.

So far.

Now, while homebuilders and developers would prefer to have the challenges they have now rather than to have been slogging through a race to the bottom on selling prices just to move enough homes to survive a stretch of throughly depressed demand, this moment too gives them pause for more than a few reasons.

• They're spending more than they'd planned – on construction crews, materials, and products, and the prospect is they're going to have to spend on land perhaps before they'd planned to.
• Builders are also competing more heatedly for marketshare, looking to put buyers and prospects into their own backlogs rather than let them go to rivals to build up visibility – not just through yearend – but into 2024.
• This means competition not just for homebuyer customers but for all the moving-parts resources it takes to continue to restore construction cycles to higher velocity inventory turns, as well as to capital in a tighter lending and investment environment, for lots that also continue to be hard to come by and progressively harder to finance.

Pressure to pivot from gutting it out, generating cash, and "working with" vendors across the board to reset the overall bar of profitable affordability lower, to a run-like-hell mode of growth into and through 2024 and beyond has built to a fever pitch.

Does something have to give on the consumer and employer front? How will that impact the depth of a demand pool whose origins and power have been a surprise to begin with?

What we've picked up recently from friends in the field is that they're definitely prepared to move, to grow, to pounce when and if an opportunity strikes them as the right one. They know, as well, that even in tighter lending conditions, capital is out there, albeit not on as favorable terms as it had been.

Above all, they know they've got to be right. No one what's to be the builder that winds up "in distress" in a market that surprisingly, is not so bad.