Midyear, for the recovery years coming out of the Great Recession, has come to mark a crossroads for those in housing. Themes and trends of the first several months of each calendar year tend to carry back to those that emerged in the latter part of the prior 12-month frame.
Then, bang! Once we cross from June into July, up-to-then latent characteristics of the year more clearly and dramatically take definition and exert force. The back half--as Wall Street refers to the time period, becomes a virtual alter-ego to the first six months. Forces that have been in play all along pronounce themselves--the Fiscal Cliff, the government shutdown, the Global Oil Glut, political gridlock, etc.--and suddenly, consumer sentiment flags under the weight of risk to jobs, predictable incomes, and as applies to home purchases, the ability to repay a mortgage loan.
We may have entered 2015 thinking that the year would be all about young adult consumers' access to a very tight mortgage credit box, but instead, thanks to a stormy Texas spring, access to labor capacity became the biggest risk issue. We may have entered 2016 believing that a chronic labor shortage would re-emerge as a great, big impediment--especially as builders expanded their community counts and ramped up the volume of starts in lower price tiers.
Instead, it looks as if the defining issue for 2016 may be the cost it takes to bring a home site online. Much of the focus of that cost has been on layer upon layer of regulatory fees, not to mention the economic cost of time it takes to develop, permit, and activate lots as home sites. It's true, municipalities, counties, states, and Uncle Sam, are all greedy for a piece of the upside of new home and community development and construction. But, there we are. No one in their right mind would conclude that those forces are going to do anything but get worse. The Presidential election year circus, notwithstanding, the big risk to recovery is home builders not being able to meet the market need for low-priced homeownership that quite evidently is surging. That comes down to lots.
Three areas of recourse will determine who wins and who loses as the second half of 2016 takes shape around home deliveries, new lot acquisition, and new customer acquisition. One, very obviously, has to do with value-driven real estate buys--ones that offer the buyer an asymmetrical edge because of either a relationship with the seller or a lack of interest among other buyers. Two, operational excellence. SAI Consulting's Fletcher Groves translates this with one word--velocity--which is speed, plus doing-things-right, plus doing things profitably. Last, but not least, value. Especially, value for the young, first-time home buying couple who may be fleeing the for-rent juggernaut.
Pay less for raw material (land) and labor (workflows, process, and decision-chains), and gain more from value. That's the way to offset the regulatory burden ... which will keep getting heavier.