Faster than you can say "Nouriel Roubini," one of real estate's more colorful gems of received wisdom comes suddenly to mind.

Housing recoveries don't die of old age or natural causes," the saying goes. "They're knocked off."

Today, ahead of the Fed's attempt to thread a needle in whose tiny eye hangs the balance of, on the one hand, either a destructive path of inflation, or, on the other, a devastating blow to residential construction, what's inevitable is a Hobson's Choice. Either way, it's a classic heads-I-win-tails-you-lose proposition. What's more, the Fed faces not only the question of how much is too much or too little, but the question of whether too much is actually too little, and whether too little is too late.

Can the Fed soft-land the economy in a zone where it's stanched the tide of rising prices without harm to housing activity? The only way, ultimately, to slow rising housing prices is much more housing activity, not less. So, few actually expect a soft-landing at all.

Bloomberg's Jonnelle Marte reports:

They’re not going to get the decline in economic activity through housing that they typically get, at least not as quickly as they typically get it,” says Mark Zandi, chief economist for Moody’s Analytics. “They may have to press on the brakes even harder.”

Get ready for a blame-fest like we've never known, but for builders, the only next best thing to do is focus, focus, focus.

An area of focus certainly not out of the reach of crisis, but still a problem area most builders might say they'd rather face than the alternative – an implosion of the foundation of homebuyer demand – would be where to invest, commit, spend, rather than, well, the opposite.

That area, we'd wager, will be how winner organizations withstand the worst of whatever bumps, bruises, shocks, and stresses lie ahead, and position themselves for a faster, more resilient rebound as market conditions restabilize, and visibility returns.

Rather than to look at current demand – in the form of backlog orders, interest lists, credit score-based buying power, loan-to-value ratios, web and physical traffic trends, time listed for sale on the market, demographics, job formations, wage levels, household formation levels, etc. – and the presumed two- to three-deep back-up to the back-up buyer – a more resilient and realistic scenario to prepare for and model would baseline the record lows for housing starts and sales activity in the latter part of the 2000s, and build a plan to survive and thrive based on that cohort of homebuyers.

The reason for this is that, in a moment of such flux, domino and multiplier effects are difficult to decipher, and very nearly impossible to predict. For example, if a root cause of demand is a combination of job growth ratios combined with household formations in a market combined with income growth, etc., then what happens if one of those forces – contrary to logic – alters its course?

It can happen, and it has.

So why not, for the sake of argument and for the sake of mapping for resilience and better odds of a swift rebound, create a contingency plan based on your opportunity to secure and add share of buyers with such elevated discretionary means that they're practically impervious to an indefinite stretch of economic instability?

Most of the re-forecasts and guidances on new-home sales and single-family starts and completions activity we've seen price in still relatively benign impacts for both the effects of inflation on household big-ticket purchase behavior and, more importantly, interest rates. A Bloomberg article by Ana Monteiro notes:

The Federal Reserve will have to raise interest rates to as much as 5% to ease the hottest inflation in four decades just as the world faces a “perfect storm” of potential recessions in the U.S., European Union and China, former International Monetary Fund chief economist Kenneth Rogoff said.

The idea that increasing rates to just 2% or 3% will slow price growth “is really unlikely -- I think they’re going to have to raise interest rates to 4% or 5% to bring inflation down to 2.5% or 3%,” the Harvard University professor said.

So, why not act as if – for hard-to-detect but plausible reasons – very few of the strong positive demand forces that should account for a steady surge of young-to-middling-young adult homebuyers actually function as they should?

If that were to happen – as might well have been the case when the COVID-19 pandemic first struck, and seemed instantly to upend almost any and all assumptions as to what pushed people toward purchasing their own new home – then how well suited would your organization for that extent of challenge?

What would that look like and how will you and your team need to behave now to make your system fit to weather that level of shock?

Free-fall or rebound rally, the answers the same for where builders would do well to look past divestiture, cost-cuts, loss mitigation, etc., and instead, invest, commit, and stand steady.

• Customer experience of value and delight – no mean feat during a stretch of time that puts stress on you and your team's ability to mean what you say, say what you mean, and do what you say you're going to do, when you said you were going to do it. Use technology to improve the capability of your team to show genuine care for your prospective and current buyers' journey.
• Team members: The latest job openings data from the U.S. Bureau of Labor Statistics shows three statistical areas in construction occupations that builders can and should impact: Hires, Openings, and Quits. As National Association of Home Builders chief economist Rob Dietz notes, the industry missed to the negative on all three fronts: lower hiring, more open jobs, and a big surge in quits.

As a resiliency and fitness measure – and to deliver the best value homes to that baseline cohort of buyers who'll be active looking for their high-value new home even if the rest of the market tanks – builders need to seize on their role and responsibility in driving hires, narrowing the "openings" gap, and investing in improving construction workplace cultures to make people want to stay, grow, and thrive through to the next upturn in housing.

Then Nouriel Roubini can go back into the woodwork to do his academic analysis, and housing can reboot into its next extended run of growth and prosperity.

Join the conversation