From the trenches: What’s wrong with the world today?
Look at the attached internal communication, and ask yourself: “Does all this sound familiar?”
Here’s the surprise: It was written in 1942 by my grandfather to the employees of Lampert Yards on the state of the company at the time.
So what is happening in the housing market, and what is really wrong in the world today?
“The past years have been difficult ones, fraught with many pitfalls and setbacks. The economy has been in one of the worst slumps since the Great Depression. We have had to lay off or terminate many good employees. Many of the remaining employees are discouraged and downtrodden. Our expenses have been consistently and constantly climbing. We have been saddled with the lowest lumber pricing in decades, which makes it impossible to create enough gross margin dollars to make any money. Competition is fierce, and so many people are selling products so low that our margins keep shrinking to intolerable levels. The government keeps adding new legislation and regulations, which every year make it more difficult to be successful. Banks are not willing to extend or lend credit and it is impossible to start any new enterprises.”
— John King Fesler
I have to say I am not an economist and don’t have a formal education in financial modeling. Of course I think that gives me a huge advantage because I am driven by the real world and common sense. Here’s some of what I’ve seen:
• Pressure on margins is the highest and worst I have ever seen. There are too many dealers, who in the interest of keeping the wheel turning and creating cash flow to pay bills, take jobs at too low a price. Builders have had an excess of time on their hands and as such have bid jobs at 6 to 8 different places, and then once they have the bids they go back around again telling everyone they are too high. And of course our natural reaction when we are too high is to sharpen our pencil and give out better pricing and thus even lower margins.
• We also all struggle with sales being too low. Our operations were built and designed to run a bigger business, and while you can layoff or terminate employees it’s very difficult to shrink a facility, and the heat and lights cost more every year.
• Government intervention and increasing regulations make doing business harder and more costly every year.
Yet, there is much to feel good about.
I believe the market is beginning to recover. Like all recoveries it will begin in some places and/or areas before others. My sense is that Florida, Nevada and California will take longer to recover. Certainly the more over-building that took place the longer it will take to recover. And while housing is returning, I feel that the condo market will take much more time to recover.
Despite everything, low-end homes began to move early last year. People are building again. Mid-level homes began moving mid-year and remarkably high-end has just started to go. I believe that in order for the housing market to be strong you need to have all levels of homes moving, and we are beginning to see this.
Several years ago when you talked to builders most were working on remodel projects, and most of those were small. The builder often had no idea what he was going to do next when his current job finished up. Today, it’s a different story. Most have a job going and another lined up behind it. Even better, half of the builders are working on houses again.
Realtors are also much more positive. Not only are the days on market shorter, but the number of people out looking have increased by almost double. We are just finishing up our annual parade of homes. For the last two years most of the homes in the tour were ones that had not previously sold. Fortunately those are mostly gone and we now have truly new homes on the market. Traffic to view these homes is more than double of last year. And even better is that most builders have either sold their current model or have a contract to build a home for someone.
I just participated in several shows (vendor shows and consumer shows), and everyone is much more optimistic on the industry and housing. Traffic is way up, and while there are always tire kickers, we are now seeing buyers enter the market. We don’t have a feeding frenzy, but compared with the last several years it almost feels like it.
St. Paul, Minn.-based Lampert Yards has 32 locations and more than 100 years of history.