Homebuilders: Do You See A Virtuous Circle Or A Series Of Tailwinds?

John McManus -

Some see a list below. Others, a virtuous cycle.

We’re probably going to see the highest rate of new construction this year for single-family homes since probably the 2008 crisis.” – Conor Sen, Bloomberg Columnist, MarketWatch

So, do you see a list of semi-related but discrete economic events and developments? Or, rather, a synchronized feedback loop that will self-sustain for years to come?

Builders got a late 2023, early 2024 adrenaline burst of buyer orders and absorption rates that exceeded every demand measure of seasonality, and expectations for a big, big year were off and running.

After bumper crop January and February recorded sales, word is that March numbers are coming in decidedly lower than earlier, unseasonably high order rates, and in many cases have slipped below normal seasonality for typical Spring Selling cadences. Blip or trend?

Sensitivities to 30-year-fixed rate fluctuations aside, it's a moment to take a gut-check about whether you're in one camp versus the other, especially with a business backdrop riddled with uncertainty and volatility.

Forces like emerging digital technologies, climate change, and deglobalization — not to mention “black swan” events like the Covid-19 pandemic and wars — have turned a rolling sea into a choppy one, where companies are beset by currents, crosscurrents, riptides, and squalls. This multiplicity of related, unrelated, and inter-related difficulties have one thing in common: They are unpredictable."

This context, from a Harvard Business Review essay by two AlixPartners strategists, Simon Freakley, CEO, and David Garfield, partner and managing director, calls for three key strategic instincts to kick-in.

  • Growth and profit leaders embrace disruption.
  • Growth and profit leaders are learning- and data-driven at all levels of the organization.
  • Growth and profit leaders are action-oriented and prioritize pace over perfection.
Executives who lead growth and profits exemplars stand apart for their unblinkered focus on the facts and their relentless determination to act on them. More than half of this group say that they are fully exploiting the advantages that data gives them in sales, customer experience, operations, and supply chain — averaging about 13 percentage points better than other companies."

As for which you see – list or virtuous cycle – a business leader's ability to adapt, move forward with principles intact, and humbly open to learning are table stakes.

It has to have been coincidence that Morgan Housel's latest Collab Fund installment of Smart Words From Smart People starts with this quotation.

People in their 30s know where the world is going because they’re going to do it. I’m in my 80s so I have no idea.” - Daniel Kahneman

Housel's piece fed into the CollabFund blog on March 24, revealing a rich tapestry of insights into human behavior, decision-making, and strategic thinking. Despite the diversity of sources and themes, three macro takeaways can be distilled for business strategists looking to navigate the complex landscape of modern commerce and societal change.

Perspective and Adaptability

Many of these quotes underscore the critical role of perspective in shaping our understanding of the world and our place within it. From Kahneman's reflection on generational insights into future directions to Schopenhauer's and Brown's notions of what constitutes a meaningful life, the emphasis is on the ability to adapt one's perspective based on broader, long-term goals rather than immediate gains. Business strategists can take from this the importance of fostering a culture that values diverse viewpoints and is flexible enough to pivot when necessary. This adaptability is key in responding to rapid changes in the market and society, enabling companies to stay relevant and thrive.

Balancing Act: Ambition and Ethical Considerations

The quotations from Harvey Firestone, Albert Lasker, and Munger, among others, highlight the delicate balance between the drive for success (whether in terms of wealth, recognition, or innovation) and the moral or ethical implications of one's actions in achieving that success. This balance is especially pertinent in business, where the pursuit of profit often conflicts with ethical considerations. Strategists should therefore ensure that their business practices not only aim for financial success but also align with broader societal values and contribute positively to the community. This approach not only mitigates risks but can also enhance a company's reputation and long-term sustainability.

Self-Honesty and Continual Learning

Self-awareness and the capacity for critical self-reflection emerge as key themes, particularly in the insights from Kevin Kelly, Tim Hanson, and others. The idea that understanding oneself and one's irritations can lead to greater insights into human nature and behavior is profoundly relevant for strategists. In a business context, this translates into the importance of continual learning, questioning one's assumptions, and being open to new ideas and innovations. It's about making oneself "obsolete" in the sense of constantly evolving and adapting one's skills and knowledge base to stay ahead of the curve..

Today, the New York Times reports:

Daniel Kahneman, who never took an economics course but who pioneered a psychologically based branch of that field that led to a Nobel in economic science in 2002, died on Wednesday. He was 90.

Kahneman's work meaningfully guided my work, covering homebuilding and its uncertainties and opportunities for more than a decade now, and will continue doing so for as long as I work. The Times obituary precisely states just how his insights serve as a guide for homebuilding stakeholders, leaders, and investors, precisely now.

His central message could not be more important,” the Harvard psychologist and author Steven Pinker told The Guardian in 2014, “namely, that human reason left to its own devices is apt to engage in a number of fallacies and systematic errors, so if we want to make better decisions in our personal lives and as a society, we ought to be aware of these biases and seek workarounds. That’s a powerful and important discovery.”

So, do you see a list at the top of this article? Or a virtuous circle?