Out from the Abyss

(The Saga of RB Builders is being presented as a nine-part series on Escape from Averageness)

 

There is this scene – final scene – characteristic of films of a certain genre:  The survivors – often as heroes, but always as survivors – emerge from the desolation and destruction to face the light of what remains of their world and figure out how to go forward.

And, perhaps as an industry, homebuilding is now there.

That’s one way to characterize the substance and tone of the exchange I had this week with Bill McBride, who publishes the Calculated Risk weblog and John McManus, who is the Editorial Director for the Residential Construction Group of Hanley Wood.  I had asked Bill whether his opinion stated in Calculated Risk – that NAR-estimated existing homes sales, based on historical turnover rates, were now in a normal annual range of 4.5 million to 5.0 million – also meant that the annual rate of CB-estimated new single family home sales should sooner-than-later settle broadly in the range of 700,000 to 900,000, provided that the relationship between existing and new home sales returned to its historic ratio.

Bill replied, that – yes – that should be the case, provided the “distressing gap” between existing and new home sales, currently at about 12:1, became a not-so-distressing 5:1 or 6:1.  In fact, he picked the midpoint of my inquired range (800,0000) as the expected annual rate of new home sales.

Bill is confident in what he sees.  I am not confident in everything I see.  John says he thinks that all the demand models are broken and nobody really knows what’s next.  John and I would probably agree that Bill is a lot smarter and knows a lot more than either of us.  Bill, John, and I would likely agree that – all things considered – there are worse prospects than a run-rate of 800,000 units per year.

If new home sales more than double from current levels over the next few years, as Bill predicts that they will, then, in my view, it matters – it matters very much – what steps every homebuilding enterprise takes as it emerges, at long last, from the abyss, and how it deals with current reality and whatever the future holds for it.  It matters, the answers it formulates to these questions:  What has to change?  How do you create sustainable competitive separation?  How do you move beyond operations and performance that was previously considered acceptable?  How do you escape from averageness?

That last question was the focus of this weblog, when I began writing it almost four years ago, in January 2009, at a point where we had already been in this housing recession for more than two years.  And, it was at that point almost six years ago, in early 2007, that I had written The Saga of RB Builders, to help explain a new consulting approach, one in which SAI Consulting would offer a high-yield, value-driven, results-based alternative to conventional consulting, one which would result in a new client-consultant partnership, and one which would require significant changes in how client homebuilding companies paid performance compensation, how they made management decisions, and how they focused the improvement effort.

The Saga of RB Builders traced the story of a homebuilding company, as it went through a five-year effort to improve operating performance and business outcomes in a changing and challenging housing market.  RB Builders and its characters were fictional, but the context in which they existed was not.  The story became a prequel to The Pipeline:  A Picture of Homebuilding Production, which will be published later this year.

Written, as it were, in 2007 and looking back – presciently, as it turns out – from a point at the end of 2012, The Saga of RB Builders, in effect, looks back to the future, and reads like historical fiction.  Written, as it were, in 2007, The Saga of RB Builders could not do justice to the length and depth of this recession, the immense carnage to come, the extraordinary damage to margins and volumes, to Balance Sheets and careers, that would ensue.

Yet, if I were asked, as the author, what aspect with which I am most satisfied, it would be that the story seems unaffected by the passage of period of time – and, thus, The Saga of RB Builders remains extraordinarily relevant.

It is a path out, from the abyss.

Part I:      The Tar Pits of Averageness

Part II:     Mutual Assurances

Part III:    A New and Difficult Course

Part IV:    A Stake in the Outcome

Part V:     Setting Out:  2008-2009

Part VI:    2010:  Farewell to a Trusted Advisor

Part VII:   Pre-2012:  A Changing Market

Part VIII:  More-for-Less

Part IX:    2012:  Beyond Current Possibility