Whether Good Signs Build Mojo Or Return To Hibernation, Prepare

To their credit, homebuilding's well-led S.W.A.T. team organizations have found a way to get the job in front of them done .... so far.

Necessity laid out new rules. In a highly volatile backdrop, new risks and new uncertainties were all that became certain. Nevertheless, homebuilders' teams have succeeded in clearing inventory by getting homebuyers to act favorably to pricing and financing incentives, as well as value-add strategies.

What might have been – a nuclear winter of stubbornly non-responsive sales efforts, mounting costs, and a bleak outlook – looks decidedly different, stronger than expected in many cases.

Builders – public and private, large, medium, and small – around the country are reporting above-seasonal order pace in communities mostly scrubbed clean of buyers at high-risk of cancelling and, increasingly, "locked in" with either mortgage rate buy-downs or significantly large earnest money deposits – along with an array of upgrades or concessions added to the mix.

Still, while January and most of February 2023 have eclipsed expectations – and they'll take what they can get – no experienced homebuilding enterprise strategist can confidently declare victory. All they can do, rather, is to recognize the hard work and, thus far successful efforts of their teams in the face of some stiff headwinds over the past six to 10 months, and brace for what's ahead, come what may.

LGI Homes ceo Eric Lipar's recap in yesterday's presentation of Q4 2022 and full-year 2022 earnings performance to Wall Street equity research analysts amounts to a refrain we've heard across the board in this cycle of public company earnings assessments and outlooks:

We're pleased with our results in 2022. Not in-spite of the challenges, but because of them. Tough times reveal what we're made of and I'm proud when I look around and see the character and commitment of our employees. Our success in 2022 reflects the effectiveness of our systems and people and gives us confidence as we head into 2023. ... we know that a positive trend over a period of weeks is no guarantee of a great year, so we're approaching 2023 with tempered optimism and managing our business conservatively. We're matching our vertical inventory to closings. We're working with our trade partners and suppliers to reduce costs, and we're allocating capital to fund our long-term growth. ...

Our positive results are proof of our ability to successfully manage through uncertain times. I'm excited about all that we'll accomplish together in 2023. – Eric Lipar, CEO and Chairman, LGI Homes, Q4 2022 Earnings Call

Lipar's summary speaks to the moving parts operators of all sizes and capital structures need to keep aligned, cohesive, running as a whole rather than in isolation from one another.

This comes down to the combination of skillsets that underlie what Lipar characterizes as "our ability to successfully manage through uncertain times." That combination consists of what you know and what you need to learn about your supply capability and what you know and what you need to learn about your real demand potential.

Wisdom and practice through good times and bad lay a solid foundation for what most principals and owners and C-suite executives draw on for what they know. That goes for both the supply part of the equation – land, operational capacity, materials and products, expertise, and capital – and the demand side: actual, not hypothetical, customer prospects.

The harder part – especially now, as hype and hurry weave themselves into the fabric of everyday life and work – is "what you need to learn" for both known and unknown supply matters as well as appreciated and unknowable impacts on demand.

The build-cycle – from real estate to the ultimate ongoing relationship with a homebuyer owner-occupier or rental property manager – is nothing if not a mash-up of moving parts, all moving at speeds previously unknown and unimaginable.

Still, it's a business of predicted outcomes, or else it's not a business. It's not too late – especially while glimmers of promise and "green shoots" of a potential market-rate housing recovery have pronounced themselves have bouyed the outlook – to run through a helpful business disciplines drill, outlined here, as "6 Proven Ways Home Builders Can Revive Their Business in 2023."

A snippet from this piece:

We all know that the home building industry is a little more complicated than the mousetrap business, but the same principles apply. Builders are used to adapting quickly to changing market conditions—economic variations, supply chain issues, labor shortages—so are better able to navigate when difficulties arise.

However, the pandemic posed challenges for home builders that no one could have ever predicted. Traditional methods of sales, marketing, and construction were no longer sufficient to get the job done. Unprecedented changes in every aspect of the construction industry have forced builders to look for new opportunities through creativity and efficiency to revive their business today.

Between a strategist and his/her team's "what they know" and "what they need to learn" lies either a tremendous opportunity or a gigantic exposure to risk. It's in that real-time vector that decisions happen and either ripple into elegant, efficient process momentum or cascade into an algorithmically costly series of errors.

Now, more than ever, builders should know how their productivity, revenue, and costs are changing in real-time. That is the baseline for data analysis, and until now, it hasn’t been readily available to many builders. Today’s leading homebuilders succeed by reacting to up-to-the-minute shifts and making smart decisions quickly. Without the access to good data, homebuilders run the risk of missing an opportunity to make timely improvements. We know this is key to the success of any business, and it becomes even more actionable when you can financial and operational comparisons to other well-run businesses.”  – Bob Swainhart, |Vice PresidentEnterprise Solutions Group, Constellation HomeBuilder Systems

Whether there will be more bumps, even greater turbulence, or, surprisingly, a smoother ride ahead, outlier builders will, as Lipar says of LGI, prove their "ability to successfully manage through uncertain times."

Will you?