Housing cycle images

Circa 2004, a notion that took hold among home building strategists was that they'd beaten the cycle. Less than a decade later, many of those same strategists were practically on their knees, with hope that that self-same cycle would restore business supply and demand to some vaguely familiar sense of normalcy.

So, on the eve of 2016, an election year, a year whose prospect is as full of mixed signals as any we may peer ahead at, the question on many a strategist's mind--whether it's phrased in terms of innings of a baseball game, segments of an auto race, legs of a marathon, or any other metaphor for an increment of time along a curve that gyrates up and down--is "where are we in the cycle?"

This question points specifically at one of residential home building and development's characteristics as a speculative game. Success, for what it is, depends on the relative accuracy of assessment one can achieve across the housing business cycle's high and low periods, plowing in forward investment as the trajectory runs upward, and reeling in cash and ridding expense around asset carries when the curve heads down.

Really successful companies resiliently maintain access to flows of essential resources--inexpensive capital, optionality, and home buyer customers--when many of their peers are focused on a single goal, cutting expenses and reducing debt. These resilient companies have the clout to remap quarterly earnings expectations into three- and four-year periods that suck out the immediate-term noise and add insight around meaningful gains.

Most home building, construction contractor, and pick-up truck entrepreneurial companies state that better management and better skills can and will future-proof them from the housing and business cycle's most tumultuous and testy times.

At the same time, many large and small companies model their business trajectories to mirror current and projected cyclical supply and demand, as well as they can foresee it, and invest accordingly.

Fact is, many of the bigger companies, the ones with less challenged access to capital resources, are placing strategic bets that now has become the time to start monetizing assets, reducing financial exposures where possible, zeroing in on specific growth opportunity, even as they take-down expectations for lower-hanging fruit in the markets ahead.

They're preparing for the current cycle to lose steam, perhaps even as lower-priced, higher volume homes and communities gain purchase in the slippery, hard-to-predict months ahead. 2016 will likely be a growth year, but when one clears away the quarterly overlays and near-term benchmarks, the vision may be of a cycle that has started to crest, suggesting active preparation for tougher challenges starting in 2017 and 2018.