Builder Market Holds Ground
Consumer demand for single-family homes is holding strong, buoyed by steady job growth, income gains and low unemployment in many parts of the country. Total housing starts inched up 0.9 percent in July to a seasonally adjusted annual rate of 1.17 million units, according to data from the U.S. Department of Housing and Urban Development and the Commerce Department.
The July reading of 1.17 million is the number of housing units builders would begin if they kept this pace for the next 12 months. Within this overall number, single-family starts held firm, up 0.9 percent to 862,000 units. Meanwhile, the multifamily sector—which includes apartment buildings and condos—rose 3 percent to 306,000.
“Builder confidence remains solid, although it has fallen back somewhat in recent months due to rising construction costs in 2018, including lumber,” said NAHB chairman Randy Noel, a custom home builder from LaPlace, La. “As builders grapple with higher costs, one positive development is that lumber prices have shown signs of easing the past two months off their record high levels posted in June.”
Builder stocks are one piece of the story.
“Every single one of them, with an exception of a couple, are making more money than they have ever made in history, and that’s with increased land costs, increased development costs, increased raw materials costs,” said David Holt, senior vice president builder/multifamily, Mohawk Industries. “Will they continue to make record profits? I don’t think so, but they will continue to take away labor costs out of the house.”
Some projects are experiencing construction start delays due to cost concerns, with the number of single-family units authorized but not started up 25 percent since July 2017.
“Supply-side challenges including increases in material prices and chronic labor shortages are affecting affordability in many markets,” said NAHB Chief Economist Robert Dietz. “However, consumer demand remains strong due to a growing economy and job market and favorable demographics. Moreover, on a year-to-date basis, single-family construction has shown steady progress, up 7.2 percent, while 5+ multifamily production is up 3.4 percent as well.”
Regionally, combined single- and multifamily housing starts in July rose 11.6 percent in the Midwest and 10.4 percent in the South. Starts fell 4 percent in the Northeast and posted a 19.6 percent decline in the West due to affordability constraints in the coastal markets. Overall permits, which are often a harbinger of future housing production, rose 1.5 percent to 1.31 million units in July. Single-family permits posted a modest gain of 1.9 percent to 869,000. Multifamily permits were relatively unchanged, up 1.7 percent to 410,000.
“The top 100 national builders represent about 50 percent of the total new home starts,” said Brad Christensen, vice president business strategy, builder division, Shaw Industries. “We are spending time cultivating those relationships, but we certainly value the partnership and distribution we have through our customer base, builder or specialty retailers. We have probably 20,000 retail customers and 2,000 builder customers. Our builder specialists primarily handle the national builder work, but there are a lot of small regional builders who can be serviced by our retail customers.”
Holt estimates that most good-sized specialty flooring retailers have 20 percent of their business in builder and multifamily, but the lack of qualified labor is the most significant challenge for all involved.
“Labor has become a huge problem, and we are trying to design products that are easier, faster and quicker to install,” Holt said. “We’ve had a huge love for our waterproof laminate because you can put it into wet areas. You can run it directly from a hallway into a bathroom, and it’s quicker, cheaper and faster to install.”
Product trends run the gamut.
“With social media playing such a big role in design and HGTV—what I call the ‘Fixer Upper’ effect—I’ve seen a huge homogenization of design nationally,” said Christine Slaughter, director of design and marketing, Shaw Industries. “Five years ago, there was a big difference between what was trending color wise or style wise, and today people are coming into design centers and going to their builders requesting the same style cabinet, the same color countertops, the same type of flooring. From a design perspective, it’s a little disappointing because I love some variety and differentiation, but from a manufacturer standpoint, absolutely it makes forecasting for us much simpler.”
In the Northeast, where the population is congested and homes are smaller, Holt said he’s seeing visuals that are less aggressive and narrower wood widths.
Ceramic tile still dominates in states like New Mexico, Arizona, Southern California, Texas and Florida. In fact, in Arizona, tile is accounts 70% of floors, Holt said.
In the southeast and Midwest wood and plank visuals are trending.
“Sales have been strong for our Dwellings builder program,” said Tracy Wyrick, national director builder and multi-family sales, Engineered Floors. “The Dwellings products bring value that enables the design centers to upgrade the home buyer.”
Across the country, builder are demanding more rigid luxury vinyl planks as a replacement for tile and wood in the traditional areas of the home, he added.
“When the luxury vinyl plank category was first introduced to the builder market, we envisioned that as a millennial flooring category,” Slauther said. “ We’ve been really astounded at the interest in and the level we’ve seen this going into—from first time home buyer homes all the way up to luxury million-dollar homes. It’s really been a generational product.”
In starter homes, however, there is an increase in sheet vinyl.
“The visuals are so realistic, you can’t tell the difference between sheet and LVT,” Holt said. “Plus, it’s truly a waterproof floor because there are no seams in it.”
He said military and veteran homes are moving toward rigid LVT because of its dimensional stability and because it doesn’t require acclimation before installation like wood does.
Waterproof laminate has also been a game changer.
“For us, laminate has seen as much growth as vinyl,” Holt said. “It is the most durable floor out there. You can put it in almost any day of the build cycle. It doesn’t scratch like wood and vinyl, it doesn’t need acclimation and it is the most realistic floor in the marketplace.”
Carpet continues to move towards lighter colors and pattern in the form of area rugs, stair runners and bedrooms.
“Tonals, soft, and tightly constructed products continue to drive carpet sales in all markets,” Wyrick said. “The solution-dyed manufacturing model gives us the opportunity to deliver these looks better than the industry using piece-dyed products.”