A brash but brilliant young man sent a memo to his board of directors outlining his plans for the new business magazine he intended to publish. The memo said, in part, “We will not be over-optimistic. We will recognize that this business slump may last as long as an entire year.” The man was Henry Luce, the magazine was Fortune, and the date? November 1929. Luce and his new magazine flourished despite the “slump,” but his forecast, obviously, was a little off the mark.
There's danger in making predictions, especially in print. The prediction may be proven wrong and the person making it can appear pretty foolish. Alternatively, predictions can have a self-fulfilling prophecy effect, where readers believe the prediction to be fact, even if only subliminally, and act accordingly, thereby making it so.
In September, I attended the NAHB's Fall Board Meeting in Seattle, and a number of builders I spoke with there believe that the self-fulfilling prophecy scenario is taking place right now. They were not in denial or being Pollyannaish. They acknowledged that there are markets in the country where things don't seem to be able to get any worse, but in their home markets, there isn't any rhyme or reason for the continued slowdown. One builder from Oklahoma put it this way: “Oklahoma is an oil state and there is plenty of work, and new jobs are being created, too. We don't have a problem with foreclosures, because the housing there is so affordable. And we don't have large inventories, either.” So why, he asked, did his company have to fight tooth and nail for every single closing?
The reason, he believes, is no more than a lack of consumer confidence. Housing bust stories in the media have convinced many Americans that buying a house right now would not be a good idea. Prospective buyers have heard there may be big declines in housing prices, so why not wait? I wish I could tell you how to counter these beliefs, but fighting a perception is like shadow boxing—your opponent is both elusive and illusory.
Seattle, on the other hand, represents the flip side of this perception. The area possesses some of the same metrics as those cited by our Oklahoma builder: Job growth and the economy are in good shape and foreclosures are low. Unlike in Oklahoma, though, consumer confidence is high. Residents seem pleased that their town has sidestepped the downturn and expect the market to remain strong. Builders appear to concur. There is a great deal of residential construction going on in the area, both in the city and in the suburbs. Downtown, condos are going up all over the place. As one meeting attendee put it, all the cranes not in China or Dubai appear to be here.
But, while U.S. home prices declined by more than 3 percent in the second quarter of this year, Seattle had a price increase of nearly 8 percent. And inventory numbers are on the rise, in some counties by more than 50 percent over last year. So, whether Seattle is beating the odds or just lagging behind the rest of the country remains to be seen. In any case, the community there remains upbeat about its prospects.
However the American home buying public responds to the daily news, though, you as builders must continue to keep your eyes on the numbers. Sales, starts, inventory, prices—forecasts of these and other metrics are crucial in determining how to best conduct your business.
In an effort to give you the most forward-looking information, we asked 12 industry economic heavyweights to examine the data and give us their prediction of what we all want to know: When will the downturn end? (See story, page 186.) Not to trumpet bad news or sensationalize how difficult things might be in the months or years to come, but because looking ahead is the best way to ensure that your company stays on the right track for the future. Henry Luce, who was an exceptional businessman (despite the occasional lapse), knew this. He put it this way: “Business, more than any other occupation, is a continual dealing with the future; it is a continual calculation, an instinctive exercise in foresight.”
Editor in Chief