The massive, glacial shift from an investor-driven housing market—last year and the year before—to one that draws off the fundamentals of jobs, household formation, owner-occupier demand, and normalized access to credit feels excruciating.
It should. Ecosystems work that way. Housing has to hurt if it’s going to get better; there’s no getting around it. If you aren’t familiar, have a look at the work of author Nassim Nicholas Taleb, whose books like The Black Swan: The Impact of the Highly Improbable and Antifragile: Things That Gain From Disorder focus on what happens when we mess with ecosystems to prevent pain. When we mess with things and try to “fix” them when they don’t work the way we want them to, we don’t prevent pain—we only delay it. And, by messing with it and delaying it, we make it worse.
The pain in housing right now comes in two forms. One, it’s hard for people who would want to buy a home right now to do so. Two, it’s also difficult to make a living trying to build and sell homes to those people. It’s one of the ironies of the moment that few people easily can buy a home, and few companies are making a brilliant living catering to the desires of would-be buyers.
In contrast, remember those heady days, when year-on-year and month-to-month comparisons were eye-popping, broadly dispersed, double-digit percentage increases in pace, price, and profitability?
Remember how quickly tens of thousands of distressed vacant homes in many markets got scarfed up hungrily by investment funds? Those houses now comprise the fuzzy single-family rental segment that people who need housing and capital players now consider a structural marketplace keeper. Never mind the fact that most experts predicted the model would never fly because it was too hard to manage a portfolio of scattered real estate units on a buy-and-hold, cash-flow basis.
Remember when each quarter, data firms would post the number of hundreds of thousands of homeowners reborn into a financial state of equity as opposed to owing more on their homes than what they could sell for in the current market?
All those gaudy comparisons, year-on-year vs. historic low-points, have turned into hand-wringing among pundits and naysayers who claim housing’s recovery is over.
They look at stagnant household incomes, mind-blowing student debt, and health care cost uncertainty and suggest that the mini-housing recovery—which consisted of aforementioned investors and cash-flush high-end buyers—has come and gone.
Every story on an urban bicycle loan program, every walk score, every use-my-location-driven app for hipsters, every account of a college-debt-laden 20-something son or daughter happily living under his or her parent’s roof seems to smack of belief in the end of the American dream.
Most of the people from whom we are hearing of the demise of the American dream are young men and women working for media companies whose mission is to come up with “end-of-an-era” stories. It’s not that what they report is imprecise because there are always statistics they can use to support their narratives. It’s important, however, to understand what the media report as narrative, a way of making a story of the world, and a way of running a business.
Home builders, developers, and the ecosystem of people and organizations in new residential construction must remember this: We’re not victims.
It’s hard to buy a house right now, and it should be. That’s why it’s valuable. That’s why they call it the American dream. It’s aspirational—not something to take for granted. It’s also hard to make a living in this business. Regulators, land costs, materials costs, labor costs, credit constraints, local fees, code costs, etc.—not to mention uncertain demand—make this job a tough one. You signed up to build American dreams. It’s gotta hurt sometimes.