We talked yesterday evening with an executive from one of the nation's biggest players in housing finance, who noted that this time of summer comes with a bit of a pause in the home builder lending arena.
Many builders, you see, are busy putting already-committed capital into place, pulling permits, moving dirt, breaking ground, pouring slabs or digging foundations, and getting the vertical process underway. A normal summer quiet time typically leads into a more frantic Fall season, as builders look to re-term loans, expand their draw-downs, and reset their access to capital when the back-half-of-the-year closings surge is in full throttle.
It's been a "good, healthy" Spring and early Summer for acquisition, development and construction lending, according to our executive level finance official, with one key observation, which confirms our belief that all home building company DNA is not the same.
"Put two different private home builders into the same market and even the same submarket, position their product offerings in identify price-ranges, give them access to the same trade base, then look at their margins," this executive says. "One is doing well, maybe 8%. The other one--with the same revenue, the same set of external conditions--is doing 13%! How can that be?"
It used to be that the up-cycle of a housing business period was a kind of free pass. If you had the means and the intestinal fortitude to weather the harsh elements of a downturn and a trough, the upward arc was your reward, and it came hard and fast.
That's no longer the case. Cyclical and secular movement in housing now takes the shape of a double-helix, which for companies, means that a rising tide will not lift all the boats, even as an ebb tide exposes who's wearing nothing and who's decent.
A certain amount of adversity, constraint, and drag, and a whole lot of uncertainty are part and parcel of business and operations modeling. A certain amount of bandwidth companies normally need to commit to today's performance needs actually to focus on continuous improvement toward tomorrow's performance.
Operators who learned well the lessons of "lean" and how they apply it to an operational template that includes land buys, product design, construction, marketing, sales, and everything in between are the outliers today. They're the ones who've re-engineered the human, the technical, the financial, the economic, the technological, the managerial, and the adrenaline flows and processes to prosper when subject to stress and attenuation of resources.
Many builders took this hard "lessons learned" tack coming out of the Recession and didn't make a big deal of it, partly because they don't like to tip their hand to the competition and partly because they don't want to mess with karma.
The result is this. New home single-family starts are beginning to flex some muscle in the data, as multifamily's 4-year juggernaut starts to show signs of slowing down. New home single-family sales are expected to continue, albeit slowly, to show momentum as new, more modestly priced communities grand open and come on line this year and next.
new home sales outlook
Get ready for new rules. New homes, new communities, improved price points, improved value and sustainability, a fresh gust of momentum that comes as families take their deeds and their keys and start creating the DNA of new neighborhoods, new connections, new cares, new investment in one another, and, amazingly, a new place for life to happen.
This is what this business community does for this nation's economy and culture. America needs new homes, new communities, and needs you to be great at what you do. It's what--continuously and resiliently--makes America great.