Word from a trusted executive this week on the ground in what had been one of U.S. housing's hottest new-home markets until a year ago is that a top 10 builder went to contract on dozens of orders with prices 23% lower in June than its May 2022 closing prices on the same homes and communities. A nearly $400,000 drop in the space of several weeks' time.

The bulletin, to be fair, hails from a single metro. However, it came as a shiver whose sweep ends, once and for all any talk of "what-inning-are-we-in?" – making clear that altogether a new full-contact-sport game is underway. Much more to come on this, for once builders – big builders especially – start dropping prices, a cascade of effects alters an entire ecosystem of interrelated and interdependent entities.

The single, clear conclusion you can take away from this message from the trenches is this:

A company that drops its prices by more than 20% in a market is no longer counting on there being a firm buyer – let alone multiple bidders – for every new home it has under construction or permitted but unstarted. When a first-mover builder in a market adopts this drastic tactic – undercutting a prior mark-to-market price-line – it's a signal not only of a strategic pivot, but of a seismic market change.

Blip or trend?

At an inflection point like the one playing out in residential new construction and real estate right now, the reflexive first question question as to the nature and degree and duration of change comes to mind for those who've been around the block a time or two or three.

A refrain from another century, "something is happening here but you don't know what it is," pops to mind as businesses, investors, policymakers, and pundits each choose a particular signal to tune into amid a storm of noise.

The raw forces that drove market-rate housing to its embolic inflection are well recognized. Long-clotted new construction activity versus a step-change surge in demographic demand treated with a cocktail of pandemic time-spent-at-home urgency and laced with a Federal stimulus accelerant came to a head toward the end of 2021. Then, in February, Russia attacked Ukraine. The rest is history.

Suddenly, any business in market-rate real estate and construction whose 2022 budget forecasts, memorialized late last year, projected "how many?" "for how much – cost and selling price?" and "when?" needed reset. Many would repair shortly afterwards to those endless conference-room-bound reforecast sessions -- ones that generate surreal new sets of KPI data when people in the field offer right-sized new counts of volume, cycle-time, and costs, and their managers raise those numbers to include new "go-gets" and their strategic chiefs raise them again to set enterprise-level performance directives, and then shave them down for their narratives to Wall Street analysts and investors.

When prices get cut – massively by between 20% and 25% – it's consequential, not only to that particular business but to THE business. It's a declaration of war to all of those organizations whose overheads and other cost-of-sales expenditures leave them less room to maneuver nimbly, speedily, and instantly to get deals done. It's also a message to vendors, suppliers, trade partners – "we're not taking this pain alone."

This is no blip.

We're no one to claim knowledge of whether what's trending at an accelerating pace now is a "correction" or a "crash" – although our view is that the floor will settle somewhere between a "return to normal" and "fetal position" dire. We'd simply say that experience tells us that tools for judging and predicting one of the other are mostly blunt, and largely a function of a self- or corporate interest, rather than a cold, clear-eyed look at what's happening and what could happen next.

For that reason, upping the investment ante on research, where new learning blends with both wisdom and experience to point for early opportunities where blips solidify into the next trends. Incentives and price-cuts aimed at regaining control of closings and absorptions per community per month are just the first measures companies will take as they shift the calculus of what they're doing to what a changing market responds to.

Even as they work to crack the new code of price and pace as a remedial measure to ensure that they're moving their owned lot inventory with some reliability, builders' next big challenge in the "blip or trend" context is in how to design and operationalize product and community offerings that better match consumer household needs, wants, and pocketbooks in a no-more-easy-money time period.

This becomes particularly critical as the major high-volume builders try to launch more than 5,000 new actively-selling neighborhoods as they've targeted to do in the next 12 months or so.

That's were architecture, land optimization, value engineering, national procurement contracts, building technologies, trade contracts, etc. all veer toward three principle non-negotiable business goals:

• High velocity, value-engineered, compelling new-home products
• Predictable pace and volume for inventory turns
• A new level-set on input costs vs. flat or lower asking prices.

In June, analysts at John Burns Real Estate Consulting's New Home Trends Institute surveyed 226 residential – production builder – architects for their sense of the moving target opportunities to retool products and processes.

Here, JBREC manager of Design Trends Allie Martin offers six pillar opportunity areas we'll likely see play out as builders' trench-warfare style competition for homebuyers intensifies in the next year or two.

• Supply chain constraints will alter design
• Cost cutting has increased for 31% of architectural designers
• Neighborhood densities will increase.
• Prefabrication/modular has jumped from a least likely design driver to a top R+D priority.
• Energy efficient designs have become a requirement, while broader sustainability is still a research area.
• Materials choices are shifting from natural to synthetic and from clay to metal.

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