This article was featured in our December 2014 issue of BUILDER Magazine.
If 2014 defined itself around an A-plus lot, high-end, discretionary buyer housing recovery, we’re going to see something profoundly different take shape in the year ahead, and it should mean good news for more builders. The best news is that what’s positive will have come of your own doing. When we look at the big headlines of the past year’s watershed moments in this $125 billion organism we call home building in the U.S., we’re encouraged by two things.
One is that despite all the mixed or negative signals as to the timing and trajectory of housing demand in the months to come, the fact is that the most wounding dislocations in housing—distressed sales, dropping prices, negative equity, etc.—are declining. These negatives have other headwinds in their wake, but these new challenges are ones builders feel good about taking on and solving.
The second reason for our being heartened right now is to witness the way the industry community is taking on the issues that do challenge progress on terms that are realistic.
We’re seeing historically low participation in the housing market by entry-level, first-time buyers. Some of the reasons for that are beyond home building operators’ control—whether they operate out of a pickup or a high-rise corporate center in New York, Atlanta, or Miami.
Part of solving that issue—getting young adults to buy into the American dream of homeownership—is definitely within the control, even the responsibility, of builders. Sparking the dream is your job, and you do that when your execution, design, community planning, and marketing are firing on all cylinders.
We see strong, well-distributed signs of that in home building. Most encouraging is that even as the economy restores financial wholeness where there were financial holes, builders are restoring the values of trust and human relationships as foundational to forward growth.
We see evidence of this in design, which in 2014 began to place an emphasis on the home buyer as someone who wants liveability over tradeability in their home and community. We’re struck by the juggernaut that connected home technology has become—what Nest CEO Tony Fadell calls “conscious homes.” Further evidence is in the business model of publics like UCP and Century Communities, whose ability to iterate success leverages long-standing human relationships and genuine partnerships among invested stakeholders.
Here are 15 of my predictions for 2015:
- Twenty-plus mergers and acquisitions deals
- The re-emergence of developed C and D lots
- Even flow execution on work in process will be critical to scale and efficiency
- Input costs will go up as factories add shifts, transportation costs surge, and material supplies get tighter
- Aspiration becomes accessible—lower-price models borrow from higher-end ones
- Density is on the table in every municipality (except some in Washington, D.C., and California)
- Jobs traction will slowly distribute to more metros
- Pace and market share get affirmed as strategies
- Policy will tilt more clearly in favor of lending to more people
- Married-with-children households will pivot and increase for the first time in years
- Big data will supplant demographics as a key filter for market decision-making
- Healthy homes will be the next big idea in marketing differentiation
- Outside-the-box amenity and community value will continue to be important to home valuations
- Home building companies will fail
- Millennials (on the margins) will buy
Many of these forecasts bear further explanation, which I will provide in coming weeks at www.builderonline.com.