patrick.net

We heard repeatedly over the two-and-a-half days of HLS that, although times are good now, and demand is solid for whatever builders can deliver to an inventory-starved market, clouds of uncertainty have begun roiling up on the not-too-distant horizon. This uncertainty makes bigger builders queasy about the investment of capital they have to make to secure inventory turns beyond the next 18 to 24 months. Uncertainty, in its early manifestations, becomes a telltale inflection point that signals it may be time to reduce leverage, to harvest cash, and preserve money as dry powder for leaner days, weeks, months, and possibly years ahead.

Although the onset of the last downturn--the Great Recession that took down housing--is more than a decade hence, home builders, their investment partners, and their associated business ecosystem remember one aspect of it as if it were yesterday. They remember that their early-warning systems failed, and they remember that the models to detect what was really going on versus what was "fake news" of demand were broken.