As though we needed the economic kicks in the stomach to remind us of the fact, housing's painstaking, jobs-fueled come-back from hell a few years ago may not be young anymore, but it's still fragile.
Word among a number of volume home builder executives we've been talking to in the hallways, nooks, and crannies during the International Builders Show this week in Las Vegas is that the two-headed Gorgon--an oil glut that appears to be spreading insecurity across the bounds of the energy sector and a China convulsion that appears to be spreading jitters across the bounds of global investment finance--is playing some havoc with one of housing's unsung essentials: consumer confidence.
Sentiment ranging from caution to trepidation is what we're hearing--primarily impacting residential developers and builders with strong positions in the segments of the new-home economy that have been the out-performers--move-up, second time move-up, and luxury communities. You'd figure that those discretionary buyers might be more sensitive both to the oil price collapse and the Wall Street gyrations as the Chinese downshift plays out.
We've had fundamental progress--lots of jobs growth and lots of household balance sheet healing--and the big question is, is housing's traction strong enough to offset the consumer confidence riling influence of the broader, global economic shocks and aftershocks to the system.
That will come down, to a large extent, to the four-legged stool that supports the new-home and development ecosystem: lots, labor, lending, and household formations.
Now, household formations has a highly correlative, if not causal, tie to jobs growth, jobs security, and pay trends. The trajectory pattern of those metrics depend on corporate profits and growth opportunities, automation and technology, etc.
The three other legs of the stool, lots, lending, and labor are where all the hard work, the bets, and the risk is for 2016 and the year or two ahead.
For all the progress and achievement builders could celebrate in 2014 and 2015 for growing their businesses, the unfinished business of the past couple of years amounts to a single word: attainability.
We can say all day that home prices, price-to-rent ratios, and price to median wage ratios all favor ownership. Fine. That's statistics.
Reality, though, is that real people in the early part of the buying spectrum need to have hope, means, excitement, and skilled marketing to draw them in, overcome their fears, appeal to their need to realize their family and household plans.
So, while labor--its tricky ebbs and flows around weather, scheduling, pay-scales, productivity measures, and effective (or in-) management--will likely hog the headlines again this year, we think it's lots and lending that are the make-or-break pivot points for housing's fragile recovery.
Lots that are unproven are being brought online. Why? Because builders need to roll the dice and venture into uncharted territory to add for-sale new communities that cost buyers less. Banks and investors need to invest in these lots, backing the builders who want to acquire them and the developers who want to ready them for new neighborhoods, for one purpose. Make new homes more attainable.
Attainability is not up to economists, policymakers, marketers, pundits, gadflies, or home builders to define. Attainability is in the mind of one person, the one who decides to buy or decides he or she can't. It's that simple.
If new homes are attainable, it will offset both the global economic contagion, and the oil price contagion, because housing, when it works the way it can, is the little engine that could. It's all about those C and D lots. Simple.