I been in the right place, but it must have been the wrong time.” –

Source: Wolfe Research

Timing, location, product, and pricing are all the spinning plates, and under each of those forces in motion stands a calculation of internal rate of return that can expand or compress, but its elasticity and tolerance can only bend just so far down.

As Patterson notes, answering the question about the likelihood that a legacy land pipeline will produce greater or lesser gross margin opportunity in 2024 gets difficult:

For our analysis, we view land acquired or tied up prior to 2021 as relatively healthier with a lower cost basis, and land acquired/optioned in 2021 and beyond as having a higher cost basis—hence, we anchor our starting point to each builder’s lot count ending 2020.”

To feed the machine, builders – public, private, large, medium, or small – need lots out ahead of them. To keep that machine hungry, builders need those lots to pencil in an environment that’s getting tougher and tougher for a larger and larger portion of would-be home buyers as cost-of-living, mortgage rate, and high home prices price more out each day.

So don’t be surprised – especially as operators thrash to nail down financial and operational budget projections for 2024 – if some participants are dashing ahead to advance a base, while others turn on their heels and rush back to the safety of the base behind them.