Halftime in Homebuilding: Forging a Path in an Uncertain Market

For some builders, the summer of 2022 hasn’t gone the way they had hoped. During most of the pandemic, demand for homes exceeded expectations, going against many experts’ predictions at the outset of the disruption. Now, sales are returning to the pre-pandemic levels of 2019. The Federal Reserve’s efforts to manage the economy haven’t fully taken effect yet, so inflation, mortgage rates and the possibility of a recession are causing some buyers and builders to sit on the sidelines, rethink their goals, and consider waiting until the overall picture becomes more clear.?

First off, let’s put things into context. The industry has been so hot since the summer of 2020 that it is only natural for demand to soften a bit now. Our industry is capacity-constrained for a variety of reasons, so it’s debatable if the level of activity we’ve seen over the past two years has been beneficial or even desirable. Has anyone enjoyed the daily “whack-a-mole” game of material availability or the escalating build times that are draining our purchasing and construction teams? Personally, I’d happily embrace market equilibrium conditions similar to 2018 and 2019 if it means we can avoid the operational struggles of 2020 and 2021. So, while some make doom-and-gloom proclamations about the current situation, I believe this all feels like a natural correction considering where the market has been over the last few years.?

I don’t see an impending downturn but, rather, think we can look at this as “halftime” in homebuilding. After two years of solid demand that broke records and defied many expectations regarding the pandemic’s impact on the market, we now have the opportunity to make adjustments and prepare for the next several years. It is also a chance to rebuild the fundamental sales skills that weren’t as critical during the white-hot market of the recent past because - let’s face it - anything we built in late 2020 through early 2022 was a pretty easy sale to move.?

While some may overreact in response to the last two months of new sales activity and find a concern, we still see substantial and encouraging market activity occurring. While we may never again see the record-high activity of 2020 and 2021 (and - again - it’s debatable whether or not that level of activity is good for our industry), most agree that the fundamentals underlying our industry - such as the lack of housing supply and stringent lending standards within the mortgage industry - paint a picture of strong years to come.?

Some with a gloomy outlook on the market right now make comparisons between 2008 and now. However, that comparison is not as clear-cut as they make it seem. Regardless of what ultimately happens in the coming months, I see significant opportunities available for builders to gain market share and even enter new areas. My experience at a national builder taught me to see any market jitters as an opportunity to grow. During my time at that company, I was involved in expansions into Central Ohio in 2009 and Central Florida in 2012. To borrow a quote from Warren Buffett, we became greedy when others were fearful, and it paid off substantially in the following years.?

Aside from expansion opportunities that may present themselves as others blink, this “halftime” period allows all of us some breathing space and the ability to improve our current operations. As one example, as the market slows a bit, potential buyers will have more homes from which to choose, so sales professionals can seize an opportunity to hone their crafts and influence buyers to avoid inaction or indecision based on short-term signals. As another example, the reprieve we are currently enjoying from pricing increase requests is allowing us to go back to our pricing to work towards more sustainable numbers with our trade partners.???

Things may feel uncertain in the housing market right now, but I believe the good fundamentals underlying our business will become more apparent in the coming months. The question is - will your company be ahead of the curve or behind it? Capitalize on this return to normalcy and use it to prepare for the second half. Rather than dwelling on where you are now, focus on where you want to be a few years from now and take action!?