OK, so which would you prefer: A market that just emerged from and questionably escaped a two-week government shutdown in October 2013, or this year’s fourth quarter?
Neither choice, I admit, is especially inviting. It’s not a fair question, but if you put yourself in your own shoes a year ago, the questions, uncertainties, risks, challenges, and doubts that bedevil budget planning for 2015 for you and your teams seem benign by comparison.
The closest thing to visibility home building operations—large or small—bring to bear during this budget season is a backlog of ordered-but-not-completed homes and a price-vs.-pace model that comes with a high margin of error.
Still smarting from the worst of the worst times, which started loosening their grip in 2012 or so, most companies want to program themselves to 15 percent to 20 percent volume and revenue growth in 2015. Will every company meet that goal? That’s easy—no.
Some will. Some, in fact, will blow past 20 percent growth in 2015, and look to do the same in 2016. Many won’t even get to double-digit growth, if they’re around at all. Why?
Look at how we measure improvement from housing’s black days of 2007 to 2011. We don’t see strong, steady growth in single-family permits, starts, and residential investment. Instead, we measure stuff that’s getting less worse rather than what’s getting better. RealtyTrac’s third quarter Home Equity and Underwater Report cites 1 million fewer residential properties seriously underwater than the previous quarter, in addition to 200,000 people who moved over the line from borderline underwater just into positive equity land.
The focus is on “less distressed,” but that’s by comparison to what’s been. When homes move from negative to positive equity, they become eminently more sellable, and that makes for a more normal market. But normal will remain adverse in 2015 and beyond. It will “naturally select” some companies to thrive as others get bought or peter out. Success will come to those who are fit for a protracted stress test on capital, on fortitude, of people who work well together, and of smart decision-making.
Research tells us that our brains make as many as 35,000 decisions daily. Counting, say, 16 or 17 waking hours, that’s a decision about every two seconds or so. A lot of this information processing in our brains is done in an unconscious manner—on auto-pilot.
Fact is, auto-pilot is the enemy of surviving and thriving in home building today. You may think you can go “back to the basics” and revert to doing what you know how to do as lenders start approving more borrowers for mortgage loans and regulators require lower down payments. But a faster recovery will only accelerate the rate and effect of errors in judgment, execution, and investment, making small problems become big ones faster. Watch. It will be true. We’re in a Darwinian recovery.
Prices, for example. Whatever anyone says about inflation now, prices are going up, some of them big time. Of all the adverse circumstances home builders have had to contend with over the “lost decade,” input cost pressure has hardly been one of them.
But look at “Back Online,” our Weyerhaeuser factory focus. On the face of it, it’s good news—a true, sustainable sign of resurgent life in home building as plants come out of mothballs and manufacturers add shifts, hire people, and speed up product and materials streams into the channel.
It is good news, and it’s got to happen. But what happens when companies add manufacturing capacity, invest in their infrastructure, increase head count, and pay for amped-up shipping and distribution of their wares?
Costs go up. And these costs need to be absorbed and passed along, first to you-know-who (you), and then to you-know-who (the home buyer). That’s why, if you’re not fit for a Darwinian ride over the next 24 months, you’re not fit enough.
The first thing to do is to stop operating on auto-pilot. Make every decision you’re conscious of mindfully and figure out how to make more of those 35,000 decisions consciously.