An elephant never forgets

An elephant never forgets

With the real estate industry seeming to be on a bumpy road to recovery, I would like to focus some attention on the trades.  You know, those individuals that make everyone else look good by being the groups that are truly responsible for the quality and increasingly energy efficient housing that is rising like a phoenix from the ashes of the housing crash.

The problem is, there are fewer sub-contractors out there that are able to take credit for this work than had been present five or ten years ago.  It seems that when housing starts decreased, so did the trade base.  However, unlike the housing rebound, the trades have been slow to ramp up and join the party.  Whether that is because they are waiting to see if this rebound is sustainable, or whether individuals have chosen to pursue other career paths does not really matter.  The fact is that there are presently more seats at the homebuilding party than there are participants ready to sit at the table.

Obviously, this has resulted in a bargaining position shift between the builders and the trades.  Where trades had previously needed to sharpen their pencils to the breaking point just to stay in business, they now have the ability to not only raise prices, but to also pick and choose those builders that they want to do business with.  And, make no mistake about it, the trades have long memories about who treated them right and with respect when times were tough and who did not.

So, what does this mean?  As with any economic imbalance, there is a window of opportunity at present where the trades have the ability to raise prices and demand more favorable payment terms.  This will, in turn, trickle down to higher home prices, and, possibly, a bit of a slowdown in the short term housing recovery.  However, it will also result in growth among the sub-contractors as existing businesses grow and new business pop up.  The lure of expansion and rising profits will bring costs down and create a more stable trade base equilibrium over time. 

The main question is how long will this take and what will be the fall out.  It is possible that homebuilders that had squeezed their trades in the past will find their expansion objectives derailed by lack of a currently consistent trade base.  Conversely, those builders that have had, and presently show, a willingness to work more favorably with the trades, may find themselves better positioned to garner the attention and services of a presently limited base of sub-contractors. 

They say that times of growth are times of opportunity.  I say that those that recognize growth to be a team effort will be the ones that reap the true rewards of a recovery.  In truth, the homebuilders that are the quickest to recognize and react to those who hold the leverage during this time of sub-contractor imbalance will most likely be the ones that best position themselves for a steady rebound.

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328