Cheering news on the jobs front sends a new spasm of pain across the market-rate housing firmament. Builders – the people who run and comprise the heart and soul of the nation’s residential construction and real estate ecosystem – say they’re prepared for the other side of the coin of an economy that won’t quit running too hot.

Admitting it makes me a dinosaur. Still, an early 1970s Springtime anthem comes like a bolt from the blue: “

Image courtesy of BDX

New home search online is down 33% for the 4 weeks ending 5-14-22 vs. the comparable period last year, says BDX senior director Jay McKenzie.

The conclusion Costello reaches looking forward through the back half of 2022 and into 2023 has a tenor that’s quite dramatically different than the one homebuilding company ceos have been willing to share with the Wall Street investment community:

Here’s how Costello bullets out the business challenges that lie ahead:

  • the tandem impact of increasing home prices and interest rates is eroding demand
  • selling skills and consumer experience have eroded in a climate of escalator clauses, contract cancellations, mid-contract increases, etc.
  • builders will be forced to “sell dirt” rather than models, specs, almost completed WIP as they replenish 5,000 new actively-selling communities
  • they’re selling to a new buyer – undeterred and less price and interest rate sensitive
  • consumer experience expectations have accelerated and elevated

Costello would likely beg to differ with views that housing activity is “normalizing.” Rather, he’s convinced that pre-Covid 2019 levels may look overly optimistic if conditions deteriorate as they well might over the next several months into next year.

Remedies, Costello would argue, mean looking differently at the data, and looking at different data to make the kinds of tactical, operational, and customer-centric adjustments the market seems to be signalling.

To succeed in today’s rapidly cooling real estate market, builders must make data-driven decisions – based on real-time homebuyer behavior and focus on forward-looking indicators of demand, not what happened in the past,” Costello says. “The key data are available. It’s time for data science, enabling smart builders to turn information into actionable insights and competitive advantage – even in a slowing market.”

Step one – given the odds that adverse conditions may in fact do some harm to those solid order backlogs and interest lists upon which builder executives are staking their confidence – is build new interest lists of current shoppers who qualify at sharply higher home prices and mortgage rates.

Comparing current KPI trends to the past three years, or even the past 12 years since the Great Recession ignores one of the key lessons-learned of ’05, ’06, and ’07. Sometimes, comparing with the wrong measures can be extremely costly.

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