Industry Update and Forecast
Written by Thad Whittenburg
Well judging by the latest news, it looks like the 2nd half of 2019 is going to see an uptick in business for builders.
Starting with the New Construction sector:
As interest rates continue to decline, housing starts are gaining traction. This is good news since the 1st quarter experienced negative growth and the 2nd quarter will end up relatively flat. The 3rd quarter will most likely land in the 7-8% growth range followed by a 4th quarter spike that will exceed 10%.
So that’s the positive takeaway but we also need to take a harder look at some of the underlying factors that will be involved in this year’s growth.
- Housing prices have increased by 3% this year and could increase more based on the Chinese tariffs and labor costs that continue to climb.
- Potential new home buyers are very price sensitive and are pushing for lower costs on homes.
- Builders are changing their strategy and offering lower lines on their standards which could move kitchen and bath budgets from 4-5% to 3-4%.
- The biggest growth in new construction is going to be starter homes.
What does all this mean? The base price offering from builders, which is typically a lower-margin product, will reduce the share of upgraded cabinetry used in a home. Throw in the impact of the new tariffs on imports and things could get dicey for manufacturers, dealers, and builders. It will be interesting to watch this change unfold over the remainder of the year.
Moving on to the Remodeling & Renovation side of the business:
Lower interest rates and higher housing prices should drive more consumers to invest in their own homes, but the forecast tells a different story. According to LIRA (Leading Indicators of Remodeling Activity) the last part of 2019 is going to see some softening that will continue into 2020. Consumers are already price-conscious these days and that will only become more acute as we press forward into next year.
Other signs that have happened recently and confirm this trend are the fall of Wood-Mode last week and CWP a few months ago.
Let’s end with these 3 things that may help you adapt to some of these changes:
- Make your business more efficient so that you have productivity gains. (This could even involve technology and process improvements…yikes!)
- Drive more value by enhancing the customers’ experience, otherwise, you will become a commodity that is driven by price.
- Review your overall expense model. If it’s over 30% of sales, you are putting yourself in a tight position. (this applies to K & B Dealers. 25% is a good goal.) A possible way to do this is outsourcing some business functions like Accounting, Marketing, Operations, and IT. This might make it less expensive in the long run.
Please register for one of our upcoming free LIVE Demos for more information.
Good luck and as always, we would love to hear from you! [email protected]