Kitchen & Bath Business - February/March 2021 - 24

HOT TOPIC

The Road to Recovery
The housing markets will lead the economy
out of the doldrums, according to a panel of
expert economists

THE DEVASTATING EFFECTS OF COVID-19 on the economy are far from over,
but stimulus packages and the robust housing markets are pointing toward
better times ahead - especially in the remodeling sector.
On an episode of " Brave New Business, " NKBA CEO Bill Darcy hosted
a web forum that explored how the economy would rebound and what will
drive remodeling in the months ahead.
Joining Darcy on the panel were Kermit Baker, senior research fellow at
Harvard University's Joint Center for Housing Studies and project director
of the Remodeling Futures Program, which analyzes remodeling activity;
Todd Tomalak, principal at John Burns Real Estate Consulting, an NKBA
research partner, which produces the quarterly " Kitchen & Bath Market Index
(KBMI); " and Ali Wolf, chief economist of Zonda, the recently rebranded
Hanley Wood-Meyers Research-Zonda Data group that specializes in real estate and technology services,data analytics and research on the housing market.
Tomalak started the conversation by remarking on the most recent KBMI
survey, which was for the third quarter of 2020. Members surveyed ranked
growth expectations for the full year at 61.9 (on a scale of zero to 100, with
50 being flat), a jump of nearly 20 points from Q2. This was the first time
in 2020 that the outlook for revenue growth was positive and was especially
encouraging since several months of work were lost because of the pandemic.
Another positive indicator: two-thirds of respondents said their orders going
forward were even stronger than they were at the same time in 2019, with
strong projections in the luxury segment as well.
Darcy asked what areas of the economy were strongest, and speaking on a
macro level, Baker noted that the " goods " side, like housing, cars and remodeling, was doing well, while " services, " like restaurants, hospitality, sports and
entertainment, were suffering. He said a key indicator of strength by segment
is the areas that are adding jobs - like building materials,warehousing and storage,especially critical in logistics support of delivery services,which are thriving.
Wolf said the stimulus packages were critical to keep the economy from
falling into a depression. She said the federal government supplemented 15%
of GDP in just the first few months of the pandemic, and the next package
would be necessary to prop the economy further. Baker concurred and said
the economy might be in " recovery mode " into 2022.

ABOVE Clockwise from top

left, Bill Darcy, Todd Tomalak,
Kermit Baker and Ali Wolf

WHAT'S NEXT?

BEST POTENTIAL

Darcy asked about what segments have the biggest upside in 2021.Tomalak
said the outlook for apartments, multifamily and commercial buildings is
very different from the single-family market.
" Single-family new construction is clearly going to outperform, but that's
not controversial, " he added. " The area of the industry that's going to grow
quite strongly over the next three years is big-project interior remodels. "
Baker said that geographically, areas with strong agriculture and manufacturing give the Midwest and Southeast a leg up. Population has migrated from
dense, urban areas - especially those with vital downtown residential presence
- to suburbs, small-town and rural areas, even vacation areas. Most at risk are
Northeastern metro areas and parts of the Pacific Coast. Migration depends

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24_KBB_0221_HotTopic.indd 24

on people's ability to telecommute, so urban areas
with a large job base in professions that support
telecommuting are likely to see a lot of mobility.
" People will move where it's less risky or lowercost, " added Baker. " These areas are, at least temporarily, more attractive. "
Wolf said there have been large migrations to
areas like Las Vegas and Dallas, but that we haven't
seen the full impact on those local areas. As people
move to different areas, businesses will follow, and
this creates a virtuous cycle of growth. Builders are
doing well because they were already building in the
suburbs,so they have benefitted from the migration.
Tomalak added that most incremental projects
last year were in the backyard. " It's a lot easier to
pour a patio or create an outdoor space than it is
to renovate your kitchen when the whole family
is at home. " This could flip, however, when people
aren't at home as much anymore.

By DIANNE M. POGODA

The panelists agreed that some pandemic-driven
behaviors, like working from home in some form,
will likely remain after the crisis has passed. Wolf
said that not all the changes will be permanent and
businesses should carefully consider what trends
they'll adapt to. She said if businesses change their
models completely to accommodate these trends
- which might be fleeting - and the crisis is over
in a year, they'll have to revert, so they should be
prudent about what changes they implement.
Tomalak said home sales are likely to stay very
strong in 2021, potentially north of 6,000,000
units, and home-price appreciation could also
reach the high-single or low double digits.Therefore, implications for housing turnover, appreciation and remodeling are solid.
Baker concluded that stability and appreciation
of homes means that there will be fewer foreclosures than there were in the Great Recession,
which is a big difference between what happened
in 2007-2009 and what's happening now.


/ FEB.-MAR. 2021 / KBBONLINE.COM / The official publication of NKBA (NKBA.org) and KBIS (KBIS.com)

1/23/21 2:23 PM

http://www.KBBONLINE.COM http://www.NKBA.org http://www.KBIS.com

Kitchen & Bath Business - February/March 2021

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