Readers may recall a study I did a few years ago attempting to identify the most reliable predictor of future new home sales activity. The closest predictor turned out to be the Michigan Consumer Sentiment Study (MCSS). The trick was that you had to adjust the MCSS data six months FORWARD to match new home sales. In other words, six months after MCSS started to improve, new home buyers feel confident enough to buy a new home. Well readers, this MCSS number bottomed out in the mid-50 range, back in the summer of 2011, and has trended upward ever since; bounding in the mid 70 to 80 range! The new home industry hit a bottom annualized new home sales rate of 304,000, and with this increase in consumer sentiment new home sales are now at 350,000+ (and climbing); up 15+% since last summer. And, the most recent annualized monthly sales numbers put the 2012 pace at 700,000+! The fewer builders operating in today’s current reality are enthused and excited with their 15-100% year-over-year backlog increases!
Then there are the doubters - those who insist on comparing today’s current reality to the investor frenzied non-reality peak. The doubters believe the current backlog increase is an anomaly - a flash in the pan. I totally disagree – I believe our industry is going to see continued improvement in new home sales conditions, for at least another eighteen months! Those builders with the sales enthusiasm, solid internal processes, customer centric personnel, and great market reputations will easily out sell their competitors.
A volume increase comes with some challenges. Are you ready for them? Can you and your staff handle the increased volume? Can you maintain operational control and customer communications/satisfaction with your “leaned out” staff? We have many reports of onsite superintendents and salespeople actually covering much larger geographical footprints, which drastically reduces true “onsite” project management and quality assurance time. Last but not least, do you have a pricing strategy in place to protect yourself and your backlog, against the sure to come (and too soon) supplier and trade contractor price increases? We all know that most manufacturers, suppliers, and trade contractors have also leaned out their inventory of materials, AND labor, and will be challenged to respond to significant upswings in activity.
This week’s management meeting question, “Can we and our current staff effectively and efficiently handle more sales, and do we have the customer satisfaction metrics, trade contractor relationships, supply guarantees, and pricing protection in place?”