From the trenches, home builders' week-in week-out challenge right now focuses on harder selling than they had to do six months or a year ago.
We hear that the level of difficulty home builders have in getting sales done is proportionate to three qualifiers that are scarce right now among prospects:
- Sufficient down payment
- High-enough credit score
It's harder now because, while some continuing percentage of them may be the move-up, second-time move-up, active adult, and luxury home buyer market that activated the first-leg of the housing recovery, an increasingly important portion of buyers are really only "potential buyers."
Here from the Federal Reserve Bank of Atlanta's Macroblog bright-light research economists Elora Raymond and Jessica Dill is a telling myth-buster about millennial pent-up demand.
They're who people may be referring to when they talk about pent-up demand. The mistake people make when they talk about pent-up demand is that they define as a quantity subtracted from "historical norm" quantity of home buyers, based on a wider universe of working age adults.
Thus the mysteries, enigmas, solutions, hypotheses, theories, and assumptions around housing--at both the macro level and at the granular level of how a particular home building firm models its prospective customer base of demand--seem to boil down to one big honking math problem, with a series of related equations that stem from its solution.
So is that what the housing economy is, a big math problem? Take capital flow, demographics, job, household, and family formation trends, materials costs, labor capacity and, and lot supply, and subject them to advanced mathematics, and it would appear that you could figure out how housing should pattern itself, and what shape, trajectory, and velocity that pattern should also solve for a hyper local understanding of how "fundamentals" shape housing's recovery.
But here's the rub. Or at least a hole in the argument that if you can do the math you should have a clear picture of what's going to happen next in housing, not only at the macro level, but at the sub-sub market level that means everything to a home builder.
Investors and real estate sellers sell square feet, and an economic value associated with square footage in a specific geography. That's different than how buyers buy.
Especially when they have to go to the trouble, the torture, the pain, and the risk of taking on a mortgage to finance their home, buyers do not buy square feet at all. They buy cubic feet, they buy three- and four-dimensional space and they buy space that gives them value in comfort, health, safety, connection to the ones they care about, and time back.
This is housing's biggest math problem, and it's one mathematicians and statisticians and economists won't ever be able to diagram, because "fundamentals" and "urgency" are not synonyms.