3 minute readBen Franklin There is a record number of people in the typical age range for first-time homebuyers, as shown in Exhibit 4A, causing a strong increase in demand for both single and multifamily housing. There are now 18% more people between the ages of 25 and 34 than in 2006. That is 6.6 million more potential first-time homebuyers, from 39.5 million in 2006 to 46.1 million today. This demographic increase in potential homeowners was not met with enough new construction. Thus, vacancy rates dropped, pushing up rents and making renting less attractive. Exhibit 4B shows the downward trend in both homeowner and rental vacancy rates, which fell to 40-year lows. This picture and the underlying data prove one thing. The fundamentals that support a business dynamic don’t always reliably predict that business dynamic, which means that leaders of firms in the homebuilding ecosystem need to be prepared for a “what comes next” that they may not believe will ever happen. For instance, looking back, leaders would have to go back as far as the early 1970s to see how at-odds their speculation based on strong demographic drivers would wind up being vs. the actual behavior of the marketplace. Calculated Risk’s host Bill McBride compares the current set of housing market headwinds to a time period more than 40 years ago a precious few were around to experience and apply learnings for today – the 1978 to 1982 cycle. During this four-year stretch, new home sales fell by half, months of supply jumped sharply, and housing starts collapsed. Here’s the basic framework for his comparison: Of course there are different factors between then and now. What, however, does it mean for leaders to be prepared for today? In a sense, it means preparing for a scenario they don’t believe is likely, allowing however, for its plausibility and future-proofing their organization as though it can occur. We are concerned firms are saying “we are prepared” when what they mean is that they believe they know enough about “what comes next” to feel confident fundamental demand will win the day. To that, we’d recommend listening to a man whose stock in trade is saying what means the most in as few words as possible, Seth Godin: Our story about the future is in the now, regardless of how far away the future is. All we can do with the future is experience our story about it right now. All problems are short-term problems if we tell ourselves the right story. But we usually don’t, because we discount the future significantly. A grilled cheese sandwich today is more important than two grilled cheese sandwiches next week. Unless we tell ourselves a present and urgent story about what it feels like to ignore the future. Because sooner or later, we live in the present. A present filled with stories and cultural pressure and the urgencies we invent for ourselves. So, when it comes to “what comes next?” are you prepared? Or are you filling the present with a story whose urgency is of your own invention?
Join the conversation
Housing’s What-Comes-Next Is Unknown: Is Your Team Ready?
June 14, 2022, 5:40pm
