To get at helpful solutions, sometimes it's helpful to ask the wrong question. That way, usually there's a smarter person around to offer up the right question. The question, "what inning are we in?" is one that we hear often. Is it the right question?
As your team is busy weeding the plant beds in your model parks, and rehearsing your real-time customer care scripts for prospects who log in to your sites online, and making arrangements for the local Realtor gala you're hosting before this weekend's grand opening, "what inning are we in?" may ring a bit remotely, if at all.
The right questions are ones about focus and discipline, as in, "is your team superbly focused, and operating according to disciplines capable of adapting to variables of timing, geography, and random events?" Preparation for what will happen is far more productive than trying to anticipate what might happen next.
The New Home Company's initial public offeringthis past Friday illustrates one key point. Global investors are nervous, about everything, including the residential real estate sector in the United States. And why not? Emerging nations (i.e. China) are in a no- to slowing momentum period of their growth, which means a huge source of demand for capital resources and goods is in limbo. Too, the Federal Reserve is tapering back on an extreme accommodation program that has kept corporate borrowing costs down and fed margins for two years plus.
So, it was into this headwind that the New Home Company team raised $86 million through the sale of 7.8 million shares equity in the company.
We spoke with ceo Larry Webb Friday morning. His attitude, after a seven-city sprint down the home stretch of a road show, was vintage Webb.
"We wanted more than anything to come out with a price where everyone felt they got value," Webb said. "That's what we got, and now the stock's up a bit, so it seems to confirm that there's opportunity here."
Wall Street Journal staffer Kris Hudson filed a post-up piece on Friday, comparing the New Home Company's IPO to home building's 2013 crop.
Home-builder initial public offerings have delivered mixed results in the past year. Three are trading below their offering prices: Taylor Morrison Home Corp.TMHC +4.50% is down 3.9% from its IPO price at $21.15. William Lyon Homes is down 3.7% at $24.07. UPC Inc. is down 2.9% at $14.57.
Here's a piece, too, from the Orange County Register's Jeff Collins (paywall).
Meanwhile, another three are trading above their IPO prices. WCI Communities Inc. is 24.8% above its IPO price at $18.72. TRI Pointe Homes Inc. is up 3.8% at $17.64. And LGI now is up 58.4% at $17.42.
All housing recoveries are divided into three parts. Historically, it's capital (i.e. Wall Street), volume, and price. This recovery has scrambled the order a bit.
Capital began moving into the space in a big way about a year ago, as expectations soared that the falling knife had touched down, it was time to reverse the flow of investment from out to in, and the engines revved up in a hurry.
As investor money absorbed vacant homes, supply of available for-sale properties stagnated (especially new ones), and prices shot up, perhaps getting ahead of where normal dynamics and fundamentals could support them.
The big question of the moment is what production home builders--you, and you, and you--will be doing to jump start the critical entry-level, first time buyer segment. That's where all the pain is nested in the marketplace right now, and where the demand chain is still in question.
We're confident that the New Home Company plan is a sustainable one, and we're pretty sure that the team there knows exactly how it's going to meet and beat its quarterly performance expectations in a way that will ensure a build on the capital flow into the coffers.
But as to what inning the recovery's in, we'd say it's about the 6th or 7th for investment capital, and about the 3rd or mid-4th inning for fundamental demand. That speaks to opportunity.