As a Winter Storm Uma portends another wallop of mischief ahead for the Midwest heading south and east, from Bismark to Charlotte, the new home sales talk track for March will likely include at least a nod to Mother Nature.
This morning, February numbers are due at 10 a.m. Eastern, and the narrative, we believe, will reflect fundamental strength, reason for growing momentum, and a solid outlook for builders as Spring Selling 2018 takes shape.
The consensus among economists, housing experts, and other analysts and gadflies calls for new home sales in February of 626,000 (orders with deposits). From what we hear anecdotally from builders–albeit mostly higher volume, multi-regional firms–is that they’ve been selling very well and that the big challenges continue to pronounce themselves on the supply side of the equation.
Add to that, continued affirmation of a steadily strengthening economy, positive job creation and low, low unemployment, and inklings of household wage growth power, and the plot line for a constructive demand trajectory up through the months ahead makes a lot of sense.
So, we won’t be surprised–despite fears that new tax laws, higher mortgage rates, and the threat that global trade conflicts might suck the oxygen out of the room–to hear this morning that new home sales eclipse what the experts are predicting. Or, as the economic analysts would say, “beat the Street.”
Five big reasons for that, which we’ll call a 2018 Spring Quintet, “Riders on the Storm” edition.
- Rents are high and are climbing through the roof.
- Rates are still low, and the threat of them increasing can spur a rush to beat the next spike.
- Existing home inventory is scarce and high-priced. Not only that, the amount of money involved in “fixer-uppers” is daunting.
- Demand has been pent-up, and financial lending constraints are easing.
- Builders have, at last, begun to introduce a stream of lower-priced models and communities, designed and value-engineered to be built and delivered faster.
So, Old Man Winter’s reluctance to let go a grip on the funnel of geography from Manitoba to Maine and Georgia notwithstanding, new home sales should continue to show improvement through the Spring and into the back-half of 2018.
Still, it’s worth it to consider what changes may be taking place at a structural level in the “why” of people’s home buying behavior.
The mental shortcut we all take with respect to the driving purchase motivation for the most expensive and valuable “consumer good” most of us ever acquire in our lives is this. It’s different than any of the other “consumer goods” we buy by its nature–it is, as National Association of Home Builders senior economist Jing Fu notes here, “Key to Household Wealth.” Fu writes:
According to the 2016 Survey of Consumer Finances (SCF), nationally, the primary residence represents the largest asset category on the balance sheets of households in 2016 (as shown in Figure 1 below). At $24.2 trillion, the primary residence accounted for about one quarter of all assets held by households in 2016, surpassing other financial assets1 (20%), business interests (20%) and retirement accounts (15%).
This works at both a macro and a micro household level. “Household wealth” is a meaningful value that motivates people to work for it, want it, and do what it takes to get it.
Still, while household wealth may reveal itself as a goal for some, for many a more profound and conscious motivator may be emerging, household well-being. Amid stresses, anxieties, turmoil, fast change, natural disaster, privacy intrusion, and other physical, mental, and emotional sources of insecurity, a home–particularly a new home–offers a prospect of sanctuary, self-care, and agency.
In this way, new homes can be relevant and meaningful, especially to a generation of consumers for whom relevance is a given in any transaction, no matter the size. A Harvard Business Review piece from Accenture consumer insight execs John Zealley, Robert Wollan, and Joshua Bellin spotlights ways home builders may find new opportunity by working to appeal to more than American’s “loyalty” to the notion of “household wealth” and the American Dream. They write:
To become a living business, companies should expand their thinking to include the following five P’s as well: purpose, pride, partnership, protection, and personalization. These form a simple and comprehensive test of relevance. The first four extend from the top to the bottom of the psychological hierarchy—from what Maslow called “self-actualization” or fulfilling your full potential, to safety, a more basic need. The fifth, personalization, enables companies to connect with customers around any of these needs.
- Purpose: Customers feel the company shares and advances their values.
- Pride: Customers feel proud and inspired to use the company’s products and services.
- Partnership: Customers feel the company relates to and works well with them.
- Protection: Customers feel secure when doing business with the company.
- Personalization: Customers feel their experiences with the company are continuously tailored to their needs and priorities.
We forget sometimes–as the pressures of real estate investment and capital flow, materials costs, labor uncertainty, regulatory burden weigh on manufacturing and input expense–that builders are not simply builders in the home construction sense of the word. They’re community and neighborhood and life builders, and as such, they’re marketers and architects of America’s evolving Dream.
So, as New Home Sales numbers come out this morning, our advice would be mostly to try to keep your team’s head down in the weeds, paying less attention to the macro disturbances of the moment, and put more focus on becoming and remaining companies obsessed with doing what it takes to be relevant. More simply, it’s showing your consumer specifically how you care for him or her or them.
