Our focus is on what to make of American banking's latest cause celebre – New York Community Bancorp's free-fall in stock value since it reported its latest quarterly results on Jan. 31 – and what effects that may have on a homebuilding sector raring for a strong Spring Selling showing in the months ahead.

A possibility is that fretting about what those effects could be may come to little or nothing. Our focus is not so much to illuminate answers as to raise helpful questions. Perhaps it's an opportunity to call attention to areas where operators can harden themselves better for the consequences of financial dislocation that crop up in other spheres, but find a way to "jump the canyon" into their own.

This has happened, famously, before.

Half of newly constructed single-family homes are built – and many more developed – by firms that principally rely on bank financing for real estate acquisition and development of projects, construction resources, and operating expenses. Many of them are currently undergoing varying degrees of stress or anticipatory anxiety as a result of last year's series of banking disruptions. As everyone knows, last year's handful of bank meltdowns dominoed into tightened traditional bank financing, and higher borrowing costs.

It only makes sense to keep a weather eye on an issue that could more than tangentially impact – even further – private homebuilders' access to their go-to capital lifeline, local and regional banks.

Here's the backdrop in brief:

The sudden decline in NYCB, previously deemed one of last year’s winners after acquiring the assets of Signature Bank, reignited fears over the state of medium-sized American banks. Investors have worried that losses on some of the $2.7 trillion in commercial real estate loans held by banks could trigger another round of turmoil after deposit runs consumed Silicon Valley Bank and Signature last March." – CNBC

And here:

To the extent that it’s well distributed, then the system could take losses. We do expect that there will be losses, but there will be banks that have concentrations, and those banks will experience larger losses,” [Federal Reserve Chairman Jerome] Powell told reporters. “So we’re well aware of that, we’re monitoring it carefully.” - Fortune

And here:

It’s not just the Federal Reserve that’s worried about the downfall of commercial real estate and its reverberating effects on the economy and business. Treasury Secretary Janet Yellen told lawmakers on Tuesday she’s “concerned” about the deadly combination of high interest rates and vacancy rates on the commercial real estate market. 

These factors will “put a lot of stress on the owners of these properties,” Yellen said, speaking before the House Committee on Financial Services Tuesday.  She cited an increase in interest rates and the higher vacancy rates resulting from a shift to hybrid and remote work—as well as a swath of commercial real estate loans that will soon come due." - Fortune

Of particular concern for bank financing-reliant private homebuilders is an axis that ties a rougher go of it on acquisition, development, and construction financing resources to the sea change we're seeing on the hybrid and remote work front that Treasury Secretary Yellen keys in on.

It's that very sea change that means private homebuilders – to stay competitive with their much larger, public-debt-and-equity capitalized public builder rivals – need to continue to replenish their vacant developed lot and raw lot pipelines in geographies that keep pace with where less tethered working households want to live.

Net, net, private homebuilders – like their public company counterparts – have done well to keep a better-than-expected pace going now through a challenging 2023 on the rates front. They've had similar tailwinds in the sense that newly constructed homes were the only game in town for the most part when it came to quality residential offerings, and mortgage buydowns served as a dependable bridge to price-in buyers who were motivated to take the plunge but sat on the bubble of financial wherewithal to buy.

Having done as well as they did in 2023, many operators are keenly aware that their re-entry into the land game – necessary now to secure a platform for growth beyond 2024 and into the mid-decade – is a much more risky prospect than it had been before the 2020 onset of COVID.

Many better private operators have had some time cushion that has buffered them from the brutal effects of higher money costs up to this point.

With hindsight, it is easy to see why higher rates didn’t immediately reduce corporate investment or household consumption. Big companies and homeowners had locked in record amounts of debt at record-low rates. Instead of Fed tightening hurting their income, major corporations and people with a mortgage kept paying the same rate but earned more in interest on their savings.

American nonfinancial companies are estimated by the Bureau of Economic Analysis to be paying about 40% less in interest, net of interest on savings, than they were before the Fed’s rate rises started." – Wall Street Journal

But now, as those same private builders seek to re-secure syndicated debt across multiple lenders, or face loan maturity events and need to re-up for go-forward access to capital, terms and conditions they'll face now will be dramatically – or even existentially different.

So, how contained is the CRE wall of worry right now? Won't we see even more turbulence – even some distress and desperation – emerging among some private operators as they reach a point where they have to borrow to keep feeding their operational machines?

Help us understand. We'd like to know what to look for in the way of signs this bank dislocation represents a relatively benign issue when it comes to privately-capitalized operators.