Here's 7 Builder Leadership Musts Of The Moment In a Mixed-Signal New-Home Market

Focus on 'what you can control' rather than the distraction of 'external issues you can't influence."

By John McManus

We hear, among company leaders--home building senior-level executives being no exception--that their strategic agendas often include too many priority to-dos, some of which cancel each other out.

Our upcoming Housing Leadership Summit, May 13-15, at the Ritz Carlton Laguna Niguel, in Dana Point, Calif., will laser-focus on a streamlined leadership agenda, aimed at year 2025 and beyond, but not ignoring what it will take to survive and thrive to that point. It's not too late to make plans to join us. Link here.

Narrowing the focus to a "super list" of knowns, unknowns, and unknown-unknowns is a necessary first step. Too, all of these uber imperatives must fall among the "things I can control" category of forces and plans, versus external phenomena to be aware of but not ruled by.

This practice is the precisely tuned purpose of this year's HLS event. It kicks into high gear from the get-go, with a kaleidoscopic review of new initiatives that are working to win submarkets. It wraps up--72 hours or so later--in a final huddle with two of home building's more progressive, nimble, and impassioned business culture-builders, Oakwood's Pat Hamill and Thrive Homes' Gene Myers, in a fireside chat with Meyers Research managing principal and rock-star Tim Sullivan, and Metrostudy analytics maven and regional director Danielle Leach.

From the opening session and the event's closing remarks, the promise is simple. The focus is you, all you. It's on what you need to become the home building enterprise you aim to be--as a business, as a community member, and as a vital role-player in people's lives--in a highly dynamic medium-term future. We've winnowed down the topics; filtered the ideas, and zeroed in on the "musts" of the moment, as distinguished from leaders' passel of everyday challenges.

The moment is ripe for ultra-focus on baseline principles, values, purpose, vision, and strategy.

Late last decade, recovery "head fakes"--including the famous "green shoots" assertions of then-Federal Reserve Chair Ben Bernanke in 2009, when national unemployment rates were topping out at over 10%--were common.

It should be no surprise, then, that housing's "next downturn" would send a few false signals of its own before it could show up as a full-bore slowdown in residential investment and its ingredient parts--weakening prices, slower order pace, higher cancellation rates, and ultimately, land that's financially under water.

Still, in the past couple of weeks, commentary from chief strategists and leadership during public builder earnings, and more than a few knowledgeable observers have spotted "green shoots" boring through a market many had given up hope on as last year ended.

Flat-to-slightly down has become the new up, thanks in part to an overshoot to the negative on expectations, and most people are giving the Fed--and the impact its easier-softer way forward it's set on interest rates and monetary policy--almost all the credit for the reignited pull of demand since Spring Selling got underway.

But although interest rate peel-backs have been tantamount to a "discount" or "incentive" to buy, and although job formation and the economy have done their part in nudging housing activity back into recovery territory, other factors have had a big hand in the uptick.

"Builders' concern with the way the 4th quarter last year fell off the cliff, and the tactics they entered the first quarter of this year to spur activity--discounts, incentives, aggressive asking price moves--add up to an important driver," says Carl Reichardt, Managing Director, Equity Research at BTIG. Reichardt also observes--as a less signficant, but noteworthy force-- that a number of builders have course-corrected their "mix-shift" of community and product offerings to emphasize lower-priced, entry-level, and first-time-buyer houses.

"The builders were really scared," says Reichardt of the back-half of 2018 pall that fell over the market. "They pivoted, and what you see now has a lot to do with what they've done to attack their own costs, prices, and add inducements. Consumers, it seems, have responded, and now, the numbers are beating our expectations coming into 2019."

The watch is on, says Reichardt, in what happens with new home inventory, particularly as spring selling for existing homes kicks into higher gear now for a couple of months. "If low rates can be sustained, and decent prices can be sustained, and the economy stays strong, and builders continue with the mix-shift in their product, the next area to pay attention to is supply in some of the markets. Up to now, constraints on volume have prevented oversupply from being a factor anywhere. But, we've seen an intensified concentration among dozens of builders in a number of the markets, and different builders approaching price aggressiveness differently than the others puts the lens on what happens to inventories when there are imbalances. A micro story to watch here is what happens when competition heats up at lower margins."

Every builder will not fare equally well when that dynamic ratchets up. So even if "flat-to-slightly-down" is the new up--given that expectations swung too far to the negative, conditions for the next 24 months are not likely to relent on the day-to-day, week-to-week challenges front.

Still, for leaders, the agenda, the compelling issues, and the opportunity now--as competing firms struggle with their choices, operational readiness, and impacts of price- and low-margin tactics--are more existential, and add up to a moment of truth.

What you do, what you need to know, and why that matters for this line-up of seven "bucket-list" areas of focus, will go far to telling whether you'll lead a Builder 100 company in the next five or six years or not. They're important enough--and all almost equally so--that they should rank with land, financing, and operational KPIs as each worth two-to-three hours of your undivided focus each week. Twenty-one hours you spend differently than you do today may be what it takes to assure your team and your firm its future.

Some of them may come across as obvious, and already rank high on your strategic agenda and weekly focus. But all of them are must-haves when it comes to your time and attention, which is why we're looking at them, to the exclusion of many other business disciplines and focus areas at our upcoming HLS event.

Become passion brands ... how do you make people feel they're having a great experience as your customers--before, during, and after the transaction--so they become enthused advocates of your value proposition in the market?
Connection to "missing middle" households ... how will you bend expense and resource constrained barriers to expand homes and communities to more average working households, rather than less?
Transform to pan-cyclical service-based businesses ... how will you "future-proof" your capital structure and business model to be more resilient and accommodative of cyclical ebbs and flows without dramatic value destruction?
Health and well-being engagement in home and community ... how will new homes stand apart as part of economic need people have to address their healthfulness and well-being in how they live in their homes?
Tech peers on Privacy, Security, and Transparency ... how and when will home building and design enterprises recognize they are technology peers with Silicon Valley, and have exactly the same opportunity and risk exposure those firms do when it comes to the personal safety, sense of security, and openness people demand as data and technology make exponential advances in our lives?
Sustainable and resilient ecosystems ... how will builders work to impact--up and down the value chain of investment, development, design, engineering, procurement, and construction--the sustainability and economic, social, and environmental balance of new residential development?
Rebuild your people pipleline ... how will builders inspire, motivate, and engage young people in their teens and 20s to recognize home building investment, development, design, engineering, and construction as one of the most noble and loving of livelihoods on earth?