The Builder's Daily Readers Say They're Up To '23's Challenges

In my column of two weeks ago, I said I’d never felt less confident about predicting where housing was headed. (Point of interest: I’ve been involved in the industry for 49 years.) So I asked you, the readers of my column, to help me out by responding to a simple 10-question survey about where you see your business and the overall housing market headed.

Based on your answers to those questions, I’d say most of you are somewhat wary about market conditions, but you’re not deeply worried that the housing market is headed toward a meltdown. And this is so even though the Federal Reserve keeps raising rates to check inflation, and every increase drives mortgage rates up and affordability down.

(Case in point: almost 100 million households, a record number, can’t afford a median-priced home.)

On top of that, the value of residential real estate assets fell in the fourth quarter of last year, the first quarterly since 2012, which was not a happy time for housing. Then there’s this: Single family starts are already down 32% from a year ago.

Given that kind of bad news (I could go on but you get the picture), I expected the survey results to be decidedly pessimistic, but they really weren’t. On balance, rather, the survey results suggest that the mindset of builders seems to be that housing has taken its hit and is steadying itself. In fact, only 15% of you think housing is headed for a decidedly hard landing, which is about the same percentage that sees a soft landing coming. A majority of survey respondents indicated that year to date the performance of their home building business was – surprisingly -- mostly satisfactory.

[Here, you can see a full report of the survey's findings].

This isn’t to say that the slowdown hasn’t affected respondents' businesses. A majority of builders indicated they were buying down mortgage interest rates and/or lowering prices on upgrades. In addition about half said they were making concessions on sales prices. Furthermore, 7 in 10 indicated they were either already building smaller less expensive houses or had plans to begin building less expensive houses.

Very few survey respondents indicated that building product manufacturers and/or subcontractors had reduced prices for goods or services. Likewise very few builders (fewer than 25%) report having made significant staff cuts. And, according to the survey, very few builders were selling off land/lot holdings. When it comes to margins, builders acknowledged they’d taken a hit but not suffered anything like a death blow.

Then there was the final question: Are you optimistic or pessimistic about where the housing market is headed in the next 24 months. And it must be hard to be a pessimist if you’re a builder, because about 75% of respondents see the housing market rebounding and righting itself relatively quickly.

What to make of that?

Well, one builder, a hugely successful industry leader and an old friend of mine, offered up this contrarian comment:

The building community always underestimates declines.”

I’m thinking he might be right, never mind the survey results.