Kitchen & Bath Business - January 2019 - 26

"Tariffs also make markets more fragile to
shocks,"he explained."When the lumber tariff was
imposed at the end of 2016, the lumber supply became restricted, and pricing went up. Last summer
saw a combination of higher interest rates and higher
building costs, which left the housing market soft."
RISING INTEREST RATES

As interest rates increase, more people are choosing to stay in their current homes. First-time buyers - who may be paying off student loans - are
being forced into higher down payments, with
the alternative being to rent instead of buy. Those
homeowners who may have been looking for more
square footage are now choosing to stay where they
are, which cuts into the available housing, or they
or are investing in smaller homes for a lower cost.

Industry Outlook
"There are several roadblocks to buying homes in the current growth cycle,"
said Gutierrez. "One is that several million consumers lost their homes in the
recession to foreclosure, and their credit was shot in addition to not having
any equity to purchase a new home. Additionally, many potential homebuyers
have student debt that impedes them from getting into home mortgage debt."
In addition to the skilled labor shortage, there is also a need to raise productivity levels. Dietz said one solution to this would be to raise the share
of modular or panelized construction that can be built in a factory and assembled on site.
"There is a business opportunity for building brands," he explained. "If
they can quantify that a certain product will save time at a worksite, it will be
valuable. It results in less waiting around and having to go back and fix things,
which saves time for other tasks."

MILLENNIALS CHANGING THE LANDSCAPE

"We don't see the rates going up seismically -
the FED is raising it in small increments," said
Fiser. "It is tightening of the labor market and
the rise in salaries that cause inflation and higher
interest rates."
THRIVING REGIONS IN THE U.S.

According to Pekel, a lot of the metro markets are
excelling in terms of growth.The Joint Center for
Housing Studies of Harvard University projected
that 10 major cities will have accounted for a 7.4
percent spending increase in 2018.
Dietz says we will still see growth in job creation centers like South Florida, the Carolinas,
Texas and California. In states like Utah, Idaho
and Montana, it is less expensive to acquire and
develop land for new housing. He says we will
keep seeing more people move from the West
Coast to the Mountain Range, where housing
affordability is better.
OTHER FACTORS AFFECTING THE INDUSTRY

While it is true that many of today's homeowners
are enjoying higher disposable incomes, this is offset by the tightening of inventory, which increases
home prices.

This younger generation of professionals and homeowners is no doubt having
an effect on our industry. Although millennials are experiencing a fast increase
in home ownership, that has been offset with reduced housing affordability. In
terms of their housing preferences,they are looking for something with a townhome feel and size in the suburbs with more of what Dietz refers to as walkability.
As professionals in our industry, millennials are garnering a lot of positive
attention as well.
"When the NKBA launched our first Thirty Under 30 class in 2013, we
were hoping to connect with a voice from that community,"said Darcy."Now
we have built a real community where they can help each other, and we in
turn have learned from them how they interpret challenges and opportunities,
which has been very helpful for us."
In reference to the skilled labor shortage, Pekel said he would like to
see more millennials involved since they are such a significant portion of
the population.
"They do not understand what a difference they can make, but they are
very oriented on having an effect on things,"he said."What better way to do
that than to make people happy and able to enjoy their lives through quality
workmanship? We have to change the narrative."
THE UNEXPECTED FROM 2018

For Pekel, it was the tariffs and the manner in which manufacturers are
responding to those. He feels there is no consistency, which makes it hard to
project the impact they will have.
For Dietz, the surprise was the rise in interest rates having a larger effect on
the industry than what was expected in terms of volume of sales.
"I was surprised by the strength in the remodeling sector and the fast recovery of homeownership,"said Gutierrez,"although as far as ownership is 
concerned, we are far away from the levels of 10 years ago."

Kitchen & Bath Business / JANUARY 2019 / KBBONLINE.COM / The official publication of KBIS (KBIS.com)

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Kitchen & Bath Business - January 2019

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