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Three Questions to Put a Spring in Your Step

Posted on May 10, 2017 in Homebuilding - 0

Welcome to Spring. How’s it feel?

Pretty good for most of us, we’d say. Things are looking up for the building industry: this year, 73 percent of construction firms expect to hire new people to address demand. It’s a hopeful environment, a reassuring one.

And while you should stop and smell the roses, you should also look forward.  An upward-trending year is the perfect time to examine your situation and plan for the year ahead. Much like how New Year’s is the perfect time to set a resolution.

And like New Year’s, such plans often fail to bear fruit. Why, and what can you do? In a new article for Builder, Clark Ellis – principal at Continuum Advisory Group – explores that dilemma.

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Competitive Advantage or Necessary Investment?

Posted on March 14, 2017 in Homebuilding - 0

A few weeks ago, between a series of meetings with a homebuilder client, I was asked if I wanted try out their virtual reality prototype, which involved me donning a pair of heavy goggles and clumsily shuffling around within a 10’ x 10’ open space. The open space, of course, was reality.  But what I was seeing through the goggles was the living room of one of their best selling house plans. On the horizon was a beautiful, scenic mountain range, which could be easily enjoyed from the fashionable L-shaped couch that I was virtually standing beside.  From a stationary position, I could rotate in a 360-degree circle to see the kitchen, covered porch, downstairs bathroom, stairs, and the entrance to the 1st floor master bedroom. From the master bedroom, I could walk around the bed, check out the master bathroom, and even take another look at that mountain range. Perhaps the coolest part of this experience came from the upstairs hallway, where I could approach the banister of the stairs, bend at the waist, and see the downstairs foyer. While not available on this particular day, the ultimate end product will include the option to change everything from the color of the walls to the structural layout of the house.  You’ll be able to build your dream home and experience it, just at the small price of wearing a bulky set of goggles.

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We Need Breakthrough Thinking in the Construction Industry

Posted on January 18, 2017 in Homebuilding, Owners - 2

Amazon is no stranger to stirring things up, and their newest invention is no exception.

Yesterday, I read an article about their first grocery store in Seattle – a pilot for now, but it’s really happening – with no cashiers and no lines. There’s not even a self-checkout: customers are tracked via technology that senses what they take from the shelves. When they’re done, they just walk out. Payment is processed automatically.

We don’t sell groceries, but we can learn from Amazon. Their efforts are an outstanding example of the type of breakthrough thinking we need in the construction industry. Supermarkets have lines, and beeping registers, and the candy next to the conveyor belt. That’s their paradigm. But what is the one thing we all hate most in the supermarket? Standing in that very line.

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Decision Making for Homebuilders | Deadlines that Matter (Video 3 of 3)

Posted on July 27, 2016 in Homebuilding - 0
In the homebuilding industry, there is an unfortunate phenomenon in the 4th quarter. It is an intense time when up to 60% of units are closed in just a few months. Partners are pushed to their limits, employees work long hours, and your entire team goes into the holidays drained.

At Continuum Advisory Group, we call this phenomenon the 4th Quarter Fire Drill. It is a natural consequence of bad habits. Like any bad habits, these can be unlearned and prevented.

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Trade Shortage Speech at Greater Orlando Builder Association

Posted on July 25, 2016 in Homebuilding - 0

On Tuesday, June 28th, Brandon Hart (Senior Consultant) and Clark Ellis (Principal) of Continuum Advisory Group spoke to members of the Greater Orlando Builder Association on one of the industry’s hottest topics: the trade shortage.  The repercussions of the recession are still looming, and homebuilders across the country are being forced to consider the impact that constrained trade capacity may have on their long term business planning.

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Fighting Fires Before They Start

Posted on February 15, 2016 in Homebuilding - 0

The 4th quarter is a time most homebuilders should be coasting to a smooth finish. It’s a time to prepare a new budget, brainstorm new strategies, and learn from the highs and lows of the past twelve months.

Unfortunately, this period often finds homebuilders struggling to finish homes in an effort to save their bottom line. The delays and procrastination from prior months come crashing down into a hectic, fiery December.

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January 2016 Economic Overview

Posted on January 27, 2016 in Economic Overview, Homebuilding - 0
Residential Industry Summary

A new year is upon us, and so are the predictions. Housing starts are expected to come in north of 1.1 million in 2015, decent growth from the previous year. Despite a minor slippage in the closing months, builder confidence is high. So what will the experts predict for our industry in 2016? It is reasonable to expect continued improvement. The economy is strengthening, cosumers are feeling better. Unemployment continues to fall, potentially dropping below 5% for the first time in over 8 years. Inflaton remains low, helping the dollar in your pocket buy more. So why not predict 1.3 million starts in 2016? Why not 1.4? Some people will. But with labor and land shortages still at the top of every builders’ list of challenges, and appreciating home prices keeping some buyers on the fence, growth in ’16 could be underwhelming. From an economic standpoint, the recent rate increase is too small to have an impact. But the stigma around rate hikes packs a stronger punch. Wage growth remains an underlying concern, which is critical to addressing price appreciation. And is anyone concerned about the mild winter? To be sure Mother Nature has something in store for us in Q1. Starts will increase in 2016, but expect single digit growth.


General Economy

  • 2015 GDP of 2.5% is highest since 2006; still below 3.0+% which is need for robust growth post recession.
  • Consumer confidence high, housing growth strong, consumer spending robust in 2016; Strong dollar and lower manufacturing exports will restrain growth and encourage Fed to hold rates steady in1Q 2016; expect rate increase in mid-year meeting.

2016 Forecast: Slow exports, strong dollar restrain GDP to maximum of 3.0%, with likely result of 2-5%-2.7%.


Unemployment

  • 2015 jobs market continues to improve with 292K jobs added in December, and upward revision of both October and November.
  • Mild winter sparking construction activity; Housing growth driving residential specialty trade contractor employment figures.
  • Participation rate is low, falling, and is driven by early retirees, 35-50 age workers’ pursuing graduate ed., and misaligned skill sets.

2016 Forecast: Slow and steady improvement; modest wage pressures; unemployment below 5% for first time since 2007.


Political Environment

  • Conflict…no change in status until November 2016 Presidential election.
  • Republican primaries continue to entertain; Eventually Republicans and Democratic alike will have to select someone to govern.

2016 Forecast: Trump driven Republican convention turmoil splits electorate, hands White House to Hillary Clinton.


Finance & Banking

  • Dec. ’15 rate increase yielded moderate impact; Strong dollar makes a 1st Q rate increase unlikely; expect mid-year action.
  • EU QE policy ongoing and is unlocking some growth; European and Global focus, however, is on terrorism and refugee crisis.
  • Strong US dollar hurts US exports; helps US imports, drives oil price down, and may eventually support faster global growth.

2016 Forecast: Interest rates remain low; mid-year and end of year Fed rate increases; markets largely unchanged.


Surety

  • 2015 estimated losses slightly up; Multi-year results are unprecedented and highly positive attracting new surety companies to market.
  • Market softening, underwriting loosening, higher capacity, and competition on indemnity or terms are accelerating for surety providers; Easier for contractors to obtain bonding support…Is this reminiscent of 1990’s?

2016 Forecast: Loss activity up but no spike; surety executives are nervous “like a long-tail cat in a room full of rockers.”


Inflation

  • Slow global growth, strong dollar, falling oil and gas prices, and modest wage pressure all tamed inflation.
  • Low energy prices are net beneficial to GDP; If prices continue to fall, potential to destabilize US and global financial markets.

2016 Forecast: Inflation remains very low throughout 2016; Energy prices remain low with oil not above $60 until 2017/2018.


State & Municipal
Agencies

  • State/Muni performance improving; FAST Act and federal support for water and sewer yeild spending growth through 2016 & 2017.
  • High profiles budget, spending, pension, and debt issues in IL, NJ, KY, and CT present both short and long-term challenges.

2016 Forecast: Continued improvement sees more funding to state & municipal priorities and infrastructure replacement.


Global Competition

  • Outside of the US, the globe is a mess…Issues include Euro crisis, Domestic and International Terrisiom, Iran Proxies, Iraq, Syria, ISIS, Yeman, Saudia Aribia, North Korea, Boko Haram…all present unique challenges and constraints to stability.
  • High flying BRIC countries undone: Brazil is in reverse; Russia is unrecognizable; India has stalled; and China’s growth has slowed dramatically…Is it time to look in a new direction for global growth?..Perhaps MIST – Mexico, India, South Korea, and Turkey.

2016 Forecast: Global growth will not return until 2017 keeping commodities low priced and constrain US exports.


Residential
Building

  • Land and labor supply hindered 2015 growth for mid-sized private builders; Workforce trending back to 2:1 starts:employees.
  • Permits (+11%) and single-family starts (+7%) for October to November with full year figures at 1.1 million starts, highest since 2007.

2016 Forecast: Growth <10% in starts due to labor shortages, rate hike stigma, and stubborn wages in 2016.


Construction Economy

  • 2015 $1.1 trillion (+10%) construction spending, highest in 7 years; Growth from: Manufacturing, Lodging, Office, Residential, Conservation and development, and Telecom….Power construction fed growth for the last 7 years fell by more than 10%.

2016 Forecast: After 7 years, health and widespread construction spending growth has returned and will continue in 2016.


Residential Construction M&A

  • Standard Pacific and Ryland merge forming the the nation’s fourth largest builder, The CalAtlantic Group, Inc.
  • PulteGroup purchases 7,400 lots from John Weiland Homes, a leading move-up and luxury builder in the southeast.
  • Builders FirstSource acquires ProBuild for $1.6B, making them the industry’s premier supplier.

2016 Forecast: Mid-size private builders will continue to feel the pressure from the publics in their local markets, leading to further acquisition activity within the top 100 in the first half of 2016.


Power
Construction

  • 7 years of growth has met its match in low energy prices; spending slowed in late 2014 and is shrinking during 2015.
  • Long-term prospects very good: Power Gen market will see renewable and gas growth along with decommissioning; Electric T&D focused on reliability, undergrounding, and asset replacement; Gas/liquid T&D focused on integrity and asset replacement.

2016 Forecast: Low energy prices will constrain growth throughout 2016 with return to faster capital spending in 2017.


Homebuilder
Financial
Performance

  • Public builders 2015 revenues up due to sales price appreciation (Avg. sale price up to $470k), however gross margins were down due to cost increases (Cost up from $95 to $103 per square foot).
  • NVR and Toll Brothers, only 2 top 10 builders reporting margin improvements over the last twelve months.
  • Operating efficiency is down due in part to labor shortages causing public builders to end the year at less than 1 inventory turn.

2016 Forecast: Avg. sales price slowly rising but not as fast as land and labor costs, builders continue to face significant margin pressure.


Construction Raw
Materials

  • Construction material prices flat in 2015 due to the strong dollar and low global demand.
  • Lumber fell dramatically in 2015 as a result of the U.S.’s import of less expensive Canadian lumber and more sawmill capacity.

2016 Forecast: Flat until global growth returns, some modest upward pressure from improving US construction markets.




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Avoiding the Quicksand Box: How not to get caught in the industry’s newest trap

Posted on January 13, 2016 in Homebuilding - 3

My dad built my first sandbox. Located a few paces on to the back lawn, it was a place where I met my friends for hours of fun. All of our 6-year-old worries were parked outside of the homemade wooden square, and the only limit to our creativity was mom’s call for dinner. Our sandbox was an extension to our house, integral to its existence.

Sandboxes were fun, and remain a source of fond memories for my family and me. But a new type of sandbox has emerged in the homebuilding industry and it’s not so fun. I call it the Quicksand Box.

Here’s how it works:

Your homebuilding company is putting the final touches on a successful Q4 in 2015. Closings for 2015 are up 10% and record October-December sales have created a healthy 2016 backlog. In order to push as many 2015 closings through as possible, you created ad hoc processes and cut some corners. Unpaid invoices, outstanding punch list items, and endless warranty lists may be waiting for you, but you just had your best year yet financially. Kudos to everyone!

Flash forward to the end of Q1 2016. Internal processes are still in chaos after 2015’s frantic pace. Your executive staff was supposed to rework your 2016 plans but they were “just too busy.” You are releasing construction starts at a record pace but have yet to add staff because much of your working capital is tied up in delayed Work-in-Process (WIP) inventory in the field. And it has become more time-consuming than ever to find, hire and train new employees.

This combination of higher volume and broken processes causes quality to suffer and schedules to slip. Employee engagement starts falling, threatening the stability of the culture you worked hard to establish, nurture and grow. Employee dissatisfaction causes turnover to spike as your competition takes advantage. This leaves your remaining people with even more stress.

In short, you now find yourself approaching the halfway point of 2016 without the necessary resources, processes, and strategy to support your market’s potential sales. Stretched resources are causing your operation to slowly deteriorate.

Eventually, fallout from your internal problems reaches your customers. Frustrated by delays, selection mistakes, miscommunication, and poor quality, they share their opinions on social media and with their friends and neighbors. As a result, your company’s image – its most critical marketing element – suffers big time.

This is the industry’s new Quicksand Box. It was created by the pursuit of an aggressive growth strategy without a clear and honest evaluation of the company’s capabilities and capacity. Leadership decided to push forward as quickly as possible to capitalize on demand and squeeze in as many sales and closings as possible. This undermined the organization slowly at first, then catastrophically, like quicksand. The hustle and long hours at the end of 2015 were just enough to hide internal deficiencies, but by the halfway point of 2016, the company found itself waist deep in the quicksand, unable to escape.

As common as this scenario is, it’s totally avoidable.

At Continuum Advisory Group, we believe in setting aggressive goals. We encourage it. However, these goals must be developed with a clear understanding of the organization’s capabilities and capacity. This level of understanding can only be achieved through effective and timely planning.

To help jumpstart your planning process, we will be publishing a series of articles in 2016 to provide the direction and content needed to successfully map the future of your organization and avoid falling into the Quicksand Box.

These articles will cover the four main quadrants we focus on when working with homebuilders. They will offer practical advice on managing the external business environment, your processes and systems, your organizational design, and your change management strategies.

Specific topics will include:

  1. Creating a Company Vision and Mission
  2. Setting Short and Long Term Goals and Objectives
  3. Creating Short and Long Term Strategies and Tactics
  4. Effectively Managing Internal Processes
  5. Thinking Strategically When Making Resource Decisions
  6. Making Strategic Software Decisions

As we turn the calendar to 2016, the opportunity to grow is there for all homebuilders, regardless of size, market, or historical performance. If you are capital constrained, the opportunity is there. If you are people constrained, the opportunity is there. The key is understanding and acknowledging these challenges early, and then crafting an effective strategy that addresses them.

Remember the traditional sandbox? The one built on the lawn that you created for your customer? The one you could always count on to wipe away your concerns and deliver a fun, enjoyable experience? This is the sandbox we want for you. Enjoy the articles.

Boy playing in the sand at the playground

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