No one blinked.

Last week I asked the ceos of four powerhouse homebuilding enterprises with extensive North American property and home construction portfolios to answer a lightning-round style question in 10 seconds or less.

Are you playing on offense now, or defense?"

The signals and conditions for them are as mixed and volatile as for the rest of us mortals. Still, none of them missed a beat in responding without mincing words.

Four for four, the answer was clear and final:

Offense."

Net, net, these strategists expect a turbulent, iffy way forward as a slew of threats continue to encircle Spring Selling 2023’s not-so-bad “eye” of a series of stormy economic and geopolitical weather patterns and crosscurrents.

The four business captains all see first-hand the shifts, feints and dodges, sharper lines of selectivity in consumer confidence and spending patterns. They recognize the weakening second-derivatives of job growth and income power. They acknowledge the early-effects of disruption and regulatory clamp-down on America’s regional and local banking system, sudden fissures and shocks in commercial office real estate investments. And, in cases, they're observing hints of submarket-specific air pockets flaring up out of nowhere even as momentum builds in stronger markets, etc.

And all of that’s not even counting for “the unthinkable,” a U.S. default on its debt.

This rupture could send borrowing costs – for businesses and households – soaring even higher if the Treasury were to stop making interest payments on real estate related securities. An unresolved debt default could quickly wreak havoc on unemployment, consumer and business activity, and tip the economy into a severe contraction.

With all of that said, our four chief executives choose a view of navigating the current landscape by the light of an immutable North Star residential real estate thesis: Too much demand is chasing too little supply, exacerbated by a dead-bolt lock on millions of people living in homes where they're paying off historically cheap mortgage loans.

Right now, that single driving rule of engagement – in business leaders' minds -- sets a floor under which their business can sink no further, a ceiling of capacity constraint, and four walls of puts and takes to manage flashes of opportunity and potential crashes of risk.

They're far from alone in a strategic and tactical assessment that's taken hold on the back of a hoped-for-but-not-anticipated stronger wave of new home demand in many markets through the first four months of 2023. One might briefly characterize it as "laser-focused opportunism." On the plus side for a "growth" strategy, present absorption rates, pricing trends, and traffic, and interest have arced determinedly upward through April.

The big caveat: Few doubt that narrow, hazard-dimpled, unforgiving local, regional, state, national, and global economic fairways stretch through the back half of this year and well into the next.

Doubly-fine-tuned acquisition strategies mean making “good deals, in the right place at the right price,” according to Builder Advisor Group founder and CEO Tony Avila.

"The right place," in many cases directly correlates to markets and submarkets where builders are burning through lots well-above plan with little to no signs of a let-up, based on web- and foot-traffic, interest lists, and local economic dynamism caused either by evolving job-growth catalysts, transportation pivots, and in-migration trends fueled by hybrid work's widening acceptance among employers.

The right price is an altogether different matter. Many builders bet on a land price reset that would follow last year's cratering in demand. So much for that idea.

The market for for-sale new-home construction and real estate looks to be up in 2023," says Avila. "That said, many of our partners on both the homebuilding side and the investment side are looking for where the growth is going to come. That means capital is king."

Public homebuilders have rarely, if ever, had such strong balance sheets – low debt to equity, lots of cash coming in from having reduced many expenses during the slowdown, and strong margins to work with to remain flexible on both Average Selling Price calibrations and other selling costs – mortgage buy-downs, and the like – optionality. What's more, many of the publics stocked dry powder and re-termed their revolving credit lines in advance of interest rate and banking shocks and stresses.

The publics approach new land deals with a different, more multi-goal motivation in a marketplace like this one, Avila notes.

They [public homebuilders] have all the capital they need, so their IRRs can reflect competitive marketshare opportunity, local scale and clout among vendors, trades, and other market-specific business partners, and the nimbleness to take down their costs to make land deals work for them that would not pencil for others," Avila says.

What's more, he notes, long money and strategic players – such as Asia-based entities who've established North American real estate, homebuilding, and construction-as-a-solution platforms, and scaled them with decisive acquisitions – show no signs of a diminished appetite to build out enterprises that can offset slower growth in their own headquarters markets.

The interest in both entities and land assets remains strong," Avila says, having recently returned from a swing to the Pacific Rim to visit with Japanese, Chinese, and Korean investors and strategic residential real estate and construction players. "Some of the asymmetries in the cost of debt, taxation, and economics continue to influence both investor- and strategic interest in the U.S. sector. Where there are opportunities, you'll see them strike in ways that align with long-term strategies."

On the other hand, local and regional private homebuilders – having done the smart thing in the lead-up to the 2022 downturn by adopting land-light strategies – are experiencing stress at a growing likelihood they may have to "reload" on lots into the teeth of high land prices, adverse lending conditions, and a whole lot of questions on the ongoing resiliency and durability of new home-buying demand. These jitters – despite an encouraging "current situation" – intensify at the thought of a delayed but not avoided recessionary patch that could take out jobs, slow consumption, and whack consumer confidence that now's the time to buy.

Our $300 million real estate income debt facility – especially given the slow-down and tightening of local and regional bank lending for projects and deals – can give operators a runway to invest for growth in smart projects they know will pencil," says Avila. "We've closed on $200 million in AD&C deals to date, and we've got several in the works, so it's the right fit for builders whose local intel tells them the deal is right."