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What we can learn from Australian construction practices; Using checklists to ensure quality management; Market update - what the bears see

October 07, 2010

What the Bears See

By Patrick O’Toole, Editorial Director

As we consider the array of possible scenarios for the timing of a full-blown housing recovery, the most optimistic estimate seems to be 2012. That is the first year in which most of the adjustable-rate mortgages (ARMs) written during the final days of the housing boom will have adjusted for the last time. ARMs typically adjust for three or five years then freeze for the remaining portion of a 30-year term. Those homeowners with ARMs who manage to stay current on their payments through those (mostly upward) changes in their interest rates which end in 2012 will likely be able to go the rest of the way without missing payments, provided the economy does not suddenly take a turn for the worse.

During the current housing bust, those holding ARMs and interest-only loans have experienced the highest rates of default on their mortgages. And the theory goes that with fewer bad loans out there pushing people into foreclosure, the housing market will be able to begin to burn off its massive supply. So I put this optimistic notion to the esteemed housing market consultant John Burns of John Burns Real Estate Consulting, Irvine, Calif. He said he was bearish.

Burns noted that the interest resets on thousands of ARMs will indeed subside in 2010, but those final resets represent only the beginning of the possible default process for homeowners. If the rate changes in 2012 and they realize they cannot make their payments, it takes roughly two years from that point before the home goes into foreclosure, pushing the final wave of defaults into 2014.

Burns says the nearest historical comparison to the national housing bust today are the regional busts experienced in Southern California and Houston in the early 1990s. In both places, housing slowed by 80 percent, almost exactly what we are experiencing today nationwide. And recovery did not happen overnight, says Burns, but progressed at a 10 percent annual clip over several years. Opportunity today lies mainly with those who have a strong balance sheet and can take on land at excellent prices.

The more bullish camp, among which I am one, is not focused on the national picture but rather the thousands of local and regional markets where housing supply is low. I am also a big believer in historical trends that show economic progress being made during presidential election years — 2012.


Wonder Down Under

By Scott Sedam, TrueNorth Development

For more than 20 years, I have traveled the U.S. and Canada almost weekly. Spending 100 nights or more in hotel rooms is not so much fun, but meeting the people and learning about the myriad of methods used to both build homes and manage companies more than compensates.

Helping these same people become more profitable has paid the bills and put four kids through college, and I’ve made more friends in more places than anyone I know.

But in case there was any danger that I’d lapse into a “been there, seen that” mindset, business has taken me to Australia for a month. Yes, the locals do call it “OZ,” and both commonalities and contrasts are striking. We dress and look the same, mostly — no one seems to pick me out as an American until I open my mouth. Many brand names are the same, although there are always Aussie touches on the label. Coke, Pringles, and Colgate are everywhere. Ford is Ford, but GM is Holden. I have seen Carrier, Wilsonart, and Heat & Glo, but I did not recognize any of the carpet or plumbing brands. Plumbers are plumbers but electricians are “sparkies” (why not call plumbers “drippies”?). Studs are studs, whether on the beach or in the wall, but they’re not 2x4’s, they’re 70x35’s, unless used for sill plate, in which case they’re 70x45’s (I’ll save you the math; they’re smaller than ours).

Virtually all the wood is finger-jointed. Inside corners on drywall at ceilings? Have not found one yet. Instead they use what looks like wooden cove/crown molding, actually pre-formed drywall and painted. Much easier to install and finish. I like it, and I’m surprised I’ve never seen it in the States.

I walked into a garage of a house I was touring and saw a huge stack of “plasterboard” (drywall), the longest I had ever seen. I paced it off and it was about 20 feet long. Having hefted more drywall than I want to recall as a lumberyard loader during college, I stared rather incredulously. A closer look showed the drywall was about 1/4-inch thick, 5/16 at the most. Considering that this house is only about 2,000 square feet, I thought to myself, How the heck do they use this stuff? Here’s a clue: When I walked into the house, I discovered it to be completely empty — of walls! They had built the outer walls and set the trusses completely, before adding one single stick to the interior. Imagine the flexibility you gain. But you can’t hang 20-foot-long sheets of drywall on ceilings, right? Not unless all the ceiling drywall is screwed onto metal “lathe” carrying strips. Could there be something there for us? 

I have much more to tell you, and I will bring you more “wonder from down under” in my next three posts.


The Value of Checklists

By Denis Leonard, Business Excellence Consulting

Whether you like checklists or not, there’s no denying the impact they can have on ensuring things get done right the first time, every time.

In a recently published book, “The Checklist Manifesto,” this impact was shown for the healthcare industry. For example, roughly 100,000 people in the U.S. die each year in surgery due to a “complication.” Driven by this unfortunate statistic, a researcher from John Hopkins developed a short checklist that was implemented in ICUs throughout Michigan.

The results were amazing: The checklist reduced infections by two-thirds, saving 1,500 lives, and 80 percent of hospital staff said they wanted to continue to use the checklist. The remaining 20 percent were asked, “If you had an operation, would you want the checklist to be used?” Ninety-three percent said “yes.”

Checklists also have great value for the home building, remodeling, and trade contracting industries. They form the basis for data collection, such as construction defects, and allow companies to audit and evaluate how their processes function.

The chart above shows the cost difference of catching a mistake early on — during the design stage, for instance — compared to having it become a full-blown construction defect that needs repair and may result in legal action. If a checklist could help avoid these dramatic costs, isn’t it worth the effort?

When formulating checklists, make sure to involve the people who will be using them to get complete buy-in. For instance, have your trade partners participate in the creation and testing of checklists.

Also, don’t forget to use the data and communicate the findings with all key stakeholders on a regular basis. Not doing so will almost guarantee users will either lose interest in the process or simply check all the right boxes just to get the work done.

Use the data to identify issues that are recurring in your processes and then address those issues by finding and eliminating the root cause.

Finally, track how much time and money are saved by using the checklist. For example, are there less return visits to job sites? Tracking and communicating the bottom-line impacts will create buy-in and lead to success with checklists.

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