It’s Time to Change

By Oren Jacobson, Market Analyst - New Home Star//

I’ve been warning all year long about structural changes to the housing market. Despite the continued growth in the overall economy, the structural features of the housing market, especially for new construction, are moving toward a more challenging reality than what we have seen for the last several years. This doesn’t mean we’re heading for a fall in the near term, but it seems likely that we will see some tightening relative to the past few years, though there are still ways for that to be avoided or delayed.

What’s the latest sign of challenges? Mortgage applications fell to a four year low this week. The combination of a lack of supply on the market, price increases, and rising interest rates is taking its toll, as has been predicted here for some time. While it’s tempting to dismiss this news as simply a seasonal issue, keep in mind we’re comparing time periods. In other words, mortgage applications over the same date ranges. To be at a four year low shouldn’t be dismissed away, even if we would expect a traditional bump early next spring.

It’s time for homebuilders to directly address a serious issue. We are building product for too small of a section of the market. And, that market will continue to shrink as the affordability puzzle becomes smaller. Moreover, beyond color schemes and the inclusion of technology, there has been little innovation in the last two decades. We essentially see most builders offering a similar product that they did a decade ago, even though the market and the buyers are totally different.

Builders need to rethink their floor plans, neighborhood developments, land strategy, and procurement processes. And, this process needs to be driven in a way that most builders aren’t comfortable with typically. Specifically, it needs to be driven by a sales and consumer-focused process. Meaning, your customer, and therefore your sales team who is closest to the customer, need to be heavily engaged in the process. The time and expenses to develop a new strategy are substantial. However, if you fail to integrate your sales team as a way to directly integrate your customer, you will inevitably fail to solve the problems.

The market is changing. It’s time for builders to change too. One day there will be another recession, and if you wait to try to fix the problems that will be exposed by it, it will be too late. Get moving now and take advantage of what remains of this upward cycle, so you’re ready for the next real pullback.