As a horrendous fourth quarter of 2008 steamrolled into an uncertain first quarter of 2009, the prospect of cash from new-home sales looked bleaker than bleak for as far as the eye could see. Finally, starting around mid-February and drawing into March and April, the faintest signs that home buyer hibernation might possibly be drawing to an end started to crop up in increased neighborhood traffic and responsiveness to the latest series of sales seductions.
Whether the glimmers would last and gain strength and whether limbo would become cash flow were suddenly reasonable questions versus wishful thinking in desperate times. A high-volume home building industry diminished to virtually a third of its former self needed answers, and needed them soon if there were to be survivors among them.
The answers—if they're to be positive—would require a combination of both skill and luck. To seize control of their own destiny in their mad dash for cash, they would go back to a basic premise of their existence: They have the size, access to dollars, and manufacturing know-how to meet the need for new homes at the junction of aspiration and financial means.
That home buyer need has changed dramatically, from more is more, to less is more, to less is all there is. So the offering to meet that need had to change from one home buyers could not pay for to one they could. In turn, the kind of company that can make that offering needed to make itself over, from one that was fueled by capacity to one that runs on capability.
Consequently, as much as people in the home building business wish that things could return to the way they once were, they had sooner let all that go, and hope for things to go a way they have never yet gone.
“They're going to have to make changes that are not temporary but enduring,” says Clark Ellis, a principal at FMI Corp., a construction management consulting firm. “If they can work more collaboratively, they might be able to become more predictable, and thereby become more reliable. That's the enduring change they have to get to.”
TRANSITION TIME “We're going to look back 10 years from now and say that this downturn was the best thing that ever happened to us,” says Steve Hilton, CEO of Meritage Homes. One of the faster-growing publics during the boom years, Meritage caught early warning signals in 2006 and started its radical organizational correction well before the financial meltdown.
“It was a tremendously humbling experience for us,” says Hilton, who describes his reorganization starting in 2006 as introducing a culture of accountability across what had been a somewhat haphazardly assembled confederation of regions, divisions, and community storefronts. “We've had to change a mind-set from kind of a holding company attitude to more of an operating company, where people's jobs, performance measures, responsibilities, communications, consistency of behavior, and sense of connectedness to the whole operated on completely different standards than before.”
Of course, the fabric of the company has also been transformed by necessary reductions of its forces; but even as overheads have come down, Hilton credits the cultural and structural reorganization for bringing about higher quality of construction and improved cycle times compared to the company's track record during the high-flying boom years. Cycle time has come down about 31 days, from point of sale through construction to delivery, to between 120 days and 150 days on average.