Everybody wants to gain some sort of insight into the future, to get some sort of realistic inkling as to what business will look like next month, next year and beyond. So, we set out to provide some answers along these lines to help floor covering retailers to better plan for the future. To provide these answers, we called on the floor covering industry’s consummate number cruncher, Maharishi and researcher who for years has published a litany of reports on the floor covering business and its various sectors, as well as reports on kitchen and bath products, building materials, building services and more industries they we can list here.

Of course, we’re referring to Stuart Hirschhorn, research director at Catalina Research, and frequent guest on TalkFloor.com. It was our mission to get a feel for the economy and its various elements, where it’s going for the rest of the year and what in turn this will spell for the floor covering business. You can listen to this interview in its entirety on the Floortrendsmag.com website under TalkFloor podcasts. But here are some excerpts of that conversation.

TF: What is your take on the housing market?

Hirschhorn: The housing market is plugging along slow and steady. There are positives and there are negatives. It, however, seems as though we are never going to get back to pre-recession levels and there are a number of reasons for that. But at least we are positive. June housing starts were up 8.3%. Last year there was a bit of a slowdown in housing as interest rates reacted quickly to the Feds starting to raise interest rates. But the market rate has actually brought that back down and the cycle seems to be strengthening once again. Permits and starts are starting to rise, while completions are still going down, based on the slowdown last year. So, it seems as though we are starting a new, little upcycle in the new build and that’s very positive for the housing market.

Existing home sales are as strong as the amount of inventory that becomes available. And that is at record lows. As a result, that is negatively impacting the market. The Dodd-Frank mortgage situation is making it harder for people to get mortgages even though employment is doing well. Income, however, has not followed suit, which is a negative. But there is also some demographic news. There is also some news regarding millennials and the fact that they cannot buy houses or are unable to buy houses. But to some extent the story is where they want to live. Young people don’t want to be 50 miles from the city center, they want to be downtown and that means multifamily. I don’t see a boom coming in housing, but I don’t see a big collapse either.

TF: I saw a piece from the Harvard University’s Joint Center for Housing Studies; it said that almost 40 million Americans live in housing they cannot afford. The home ownership rate is falling as home prices are rising. What are your thoughts here? It doesn’t sound promising for the sale of floor coverings and it sounds troubling for the housing market overall.

Hirschhorn: I laughed when I read that because I have always thought that most people buy houses they can’t afford. Being someone who bought their first house in the ’70s for $40,000 and over 20 years the same house was priced a $400,000. No one could afford the house they lived in. Americans have traditionally bought a house and used it as a savings account. That’s one reason they are so happy where they are and don’t move as quickly. But on the other hand, if people are in a house and they are not moving, that’s the replacement market and the sweet spot for the flooring industry. So the question becomes how do we keep the replacement market healthy? And what was a boom for that segment for a couple of decades was the invention and acceptance of the home equity loan. This permitted people to pull the equity out of the house that has been accumulating and use it to upgrade the house or for educating the kids or for other things. When access to this equity was made available, it became a major boom to the industry. Generally, the reason why people can afford housing is supply and demand. Sufficient houses are not being built, and as a result, there is more demand than there is supply driving the price of housing up. Also, when a house is purchased by someone in their 20s or 30s, their income is normally going to rise for a decade or so. When they reach their 50s or 60s, their income is not rising and the prices of housing prices are going up 4% to 6% a year.

TF: They tell me that a large percentage of millennials are still living in their parent’s basement. Do you see this demographic affecting the economy more and more as we go forward?

Hirschhorn: I did read that first-time homebuyers as a share of all homebuyers has taken a jump in recent months. I think they are cycling in at an older age. Hopefully they will live a lot longer. Life expectancy, after all, is rising. I think stages of the life cycle are longer than they used to be. You also have to remember that millennials represent a very large portion of the population and it’s not unlike the baby boomers who came on the scene in the 70’s. Productivity was low then because there was a surge in inexperienced young workers entering the labor pool and their income was low. But when they finally got involved in the labor market and accumulate some money, the housing market boomed. We could be five to seven years before we see a boom in housing as a result of millennial buying homes. We used to see the purchasing of a first house most often take place when buyers were between 25 and 35. That may be raised now to between 35 and 45, but they will still live in a home they own for 40 years. I feel that positive things will result for millennials.

TF: How would you peg the floor covering business during the first half of 2017? And, has anything surprised you?

Hirschhorn: Overall I would say that the industry is happy. There were some surprises and changes in the mix that I saw. We’re in the 4% to 5% range of growth. For the flooring industry that is a relatively healthy rate of growth for the long term. It’s up from last year so I think the industry is happy. For the first time in a decade we are seeing non-movers, people who are not buying new or existing homes, are starting to show some muscle in the market and starting to spend, which is definitely helping the specialty floor covering retailer and is very positive for the industry especially within the hard surface areas. Generally, it’s been a positive first half.

We track the value of single-family homes, the value of new construction and multi-family housing. We also track the value of home improvement construction, and what has surprised me a bit is that that number has soared over 20% which is way out of line with housing starts and resale numbers. We know that a major part of that is coming from non-movers, people who have been in their houses for 10 or 15 years, and who have made it through the housing crises and are starting to spend, and that is a very positive sign for the flooring industry because it represents over 50% of the flooring market.

TF: What about the various segments of the flooring industry? What’s your take on they fared during the first half?

Hirschhorn: The news here is a usual: hard surface was up 6%. The LVT, WPC and the various new categories have taken the resilient numbers off the charts, growing at double-digit rates. Ceramic and wood, however, have still been good growth areas for this industry. What surprised me were the laminate numbers. In the first quarter these numbers showed a great deal of strength. What I think is happening here relates to the coming off of the Chinese formaldehyde emissions issue where of course the laminate segment suffered. So, the increase if coming over a low base number, but there are, however, some changes in that sector. More is being sourced from Europe and Canada. There are also upgrades in the product to more waterproof varieties which can compete better with LVT and WPC. Overall, I also feel that the concept of LVT, which is an improvement over laminate, has stimulated interest in laminate again. And after two years the Chinese controversy is gone.

TF: We read a great deal about the millennial consumer and their preferences about buying nearly everything online, and it appears that all age groups are following suit to one extent or another. What are your thoughts on how this will affect the floor covering industry? Will a reasonable amount of floor covering be eventually by purchased online?

Hirschhorn: Buying floor covering online is certainly different from buying clothing where you can visit a site and buy a shirt or even go to another site and see yourself in that shirt. I feel that we will see these type of tools more and more in the flooring sector because the process of purchasing flooring is more complicated and it’s not a product people buy frequently. People need to walk on it and feel it and touch it and understand the installation process before they buy it. My thinking is that we are slowly moving toward this. Even the retail store that has a large warehouse in the back doesn’t need that and maybe an Amazon will warehouse products just as book publishers once did. Book publishers didn’t die; they just don’t have warehouses full of books; the books are simply in someone else’s warehouse and are shipped as needed.

I look at virtual reality more where someone can immerse themselves in a renovation project that permits them to select various room colors and a variety of different products as well as a variety of floor coverings—carpet, hardwood, ceramic or laminate all with different looks and colors. It’s my feeling that we will see more and more of this going forward and companies like Wayfair, Houzz and other online furnishing companies that can provide that type of service and permit the consumer to click through to a local flooring supplier or a local installer. I see the entire process changing both online and offline and it’s not so much centered on economic factors. Some people will be looking for $0.95 per sq. ft. laminate flooring, they visit Home Depot to see what it is, they go online and click and that’s it. Most people however will shop and purchase online in a much more sophisticated way.

TF: What are your expectations for the floor covering business for 2017?

Hirschhorn: As I mentioned, we were in the 4% to 5% range in the first half of 2017; there may be a little drop off in the second half. Even though housing is getting a little stronger it’s working off of a smaller base from last year. Also, some of the completions, when you get the end of new homes being built, may slow things down a bit. All in all, I think the slowdown in the second half will be very minor. As I said the non-movers, which is more that 50% of the market, will continue to contribute to growth in the second half of 2017. The second half will probably be a carbon copy of the first half.