No question the Federal Reserve meeting and decision this week on beginning to ratchet up interest rates has more spectator sport value than tonight's Giants-Dolphins Monday Night Football game.
Yes, the "lift-off" decision will eventually work its way into what rates banks charge for mortgages, and that will work its way into monthly payments.
Yet, historically, higher interest rates haven't acted as a wet blanket on home sales, as long as the economy chugged along, kept making jobs, gave people expectations for pay raises, and allowed them to calculate the deal along a payment continuum that looked challenging at the beginning, but got easier as household incomes rose over the years.
Too, not discounting all the economic headwinds and headline risks of turmoil, terrorism, natural disasters, etc., what's yet to kick in as an economic factor of importance in the first leg of the recovery is the multiplier-effect of single-family housing on overall residential investment.
So, what 2016 comes down to is a tug-of-war between the potential drag effect of $177 per month added to an average home buyer's monthly principal and interest payment that a one-percent mortgage rate increase would cause, and a home builder's set of tools and options to offset that monthly bump.
So, first of all, we ask again. Are the Fed moves, which are uncontrollable, exogenous events going to alter housing's recovery?
If the answer is "yes," stop here.
If the answer is "no," lets consider what options home builders, as individual firms, and as an informal collective community, might emphasize as they work to mitigate any potential hit that home buyer customers would take if rates rise.
Where are the opportunities for greater efficiency? Is it more about overheads efficiency, or more about an efficient building process, lower hard costs, simpler plans, or what? Is the focus on labor constraint--more dollars per hour--better focused on reframing the process so that there's more productivity per hour? Are the three skill-sets essential to today's successful home builder--real estate/asset management, construction management, and consumer marketing and design--the best use of time, talent, and resources? Is the land density question not more a land optimization question, so that what both developer, builder, and home buyer get is value across the board? The critical take-away of the moment as regards the meeting of the Federal Open Market Committee of the Federal Reserve is this. External conditions are just that. They're the hand everybody in the home builder landscape is dealt.
Some of your peers will manage to them, even use them to their competitive advantage. It's a choice each company makes.
Now, back to the game.