In the mid-1970’s, in the midst of economic doldrums, my Dad suffered a heart attack and was off from work for over six weeks. Wanting to shield him from any worry, when I made my daily visits, I would only share positive news: so, he didn’t know how we were struggling to keep our crews working and how we had reduced margins to do so. One day he said to me, “ I know times are tough, I know you are trying to stay busy and I know that you are taking work cheap.” Flustered, when I questioned how he could know such things, he responded, “Because I watch the news, I am aware of the economy and how it affects our business. I’ve been there; I understand the pressure you are under. But remember, times will get better and when they do, you don’t want to have so much cheap work on the books that you are unable to take the high-margin jobs.”
Times are tough now: scrambling for sales, people are “cutting deals” and selling at margins they would not have considered a short time ago. However, like the mid 1970’s, times will get better and you don’t want to be stuck with low-margin business when they do.
In 2006, in Florida, there was the capacity to deliver building materials to over 200,000 housing starts. Now, with housing starts somewhere south of 50,000, capacity has been and will continue to shrink to meet demand. There will come a time, hopefully not too far in the future, when the housing market will turn. When it does, demand will outpace the capacity to satisfy it and there will be an opportunity for increased margins. This window of opportunity will only be open until capacity – more competition – increases to meet the demand. The question business leaders must consider is, “How do you know when the market is turning?”
To answer the preceding question, my Dad would have advised you to “listen for the phone;” if it’s ringing, business is picking up. When considering market activity, perhaps not the best, but not a bad measurement to look at. There are other indicators you might want to consider:
♦ Number of quotes – If you are not keeping track of the number of jobs your company is quoting, you may want to do so. An overall increase in quotations may indicate a market change.
♦ Building Permits – An increase in building permits is a good indicator of future starts. FBMA publishes this information monthly in e-Blueprint, for individual jurisdictions, as well as the state as a whole.
♦ Real Estate Sales – An increase in the sale of existing properties indicates that housing inventory is being reduced and there will eventually be a demand for new housing.
By charting the preceding metrics together, you will begin to get a handle on the housing market in your area. This “market intelligence” will help you determine margins and inventory levels.