let’s talk : HOMEBUILDERS & PRODUCTS IN THE 2019 MARKET

Good morning!

This week we are talking about an article my husband and I discussed earlier this week. One thing I will say about him is that he is a HUGE READER and will read anything and everything, not only about the industry he works in, but also the industry I work in! This particular article was about renovating and building homes in today’s market. The article talks market trends, costs, returns, everything. Let’s talk about that.

So, as we do, let’s talk Real Estate, let’s talk BUILDING AND RENOVATING HOMES IN 2019…

Now before I start, I feel as though I must share that this was a 74 page report with an infinite amount of numbers, stats, and footnotes. I have done my best to consolidate this into a 1 page newsletter but if anyone would like to see the full report let me know and I am happy to send it to you!

WHAT IS THE 2019 MARKET SHOWING US?

(1) Size Is Not Everything
Bigger is not always better – for the homebuilders AND the home material product sellers. 

The average size of a home is trending down as millennials and other first time home buyers enter the market. Simultaneously, we are seeing that baby boomers are also trading in their large homes for less square footage as they seek a home that is easier to maintain. 

The product companies that typically sell “housing materials” are also doing some downsizing of their own. They are focusing on a smaller line of products in order to provide more value to their shareholders.  Over the years these companies had grown to provide a wide array of products losing focus on what they know best. Industry experts expect this to change in the coming years as a more focused business line can actually provide higher growth and returns. Recently we have seen this with Armstrong Worldwide (AWI) as they spun off their floor business in order to focus on commercial ceiling work. Masco did the same thing with the spin off its insulation installation business in 2015, and the sale of their electric staple gun, nail gun and rivet tool manufacturing business in 2017, and followed by the divestiture of its UK cabinet business in 2018. Overall, many of these large conglomerates are divesting to focus on a specific market niche.

(2) Residential Renovations Provide A $107Bn Market Opportunity For The Product Companies

(3) Commercial Markets Provide a $23Bn Opportunity For The Product Companies

(4) Residential Market – Both New Construction And Renovation Are Expected To See Single Digit Growth Through 2021

(5) Commercial Market – New Construction Is Forecasted To Be Flat In 2019, While Renovation Is Expected To Continue Trending Upwards

(6) Raw Materials Constitute ~25% Of The Sale Price Of A New House On Average

(7) The Average New Home Value Content Has Increased
The value content (aka the cost of the raw materials) for a new U.S. single family home has increased from $23,073 in 1982 to $82,642 in 2018. 

CURIOUS TO KNOW HOW MUCH EACH MAJOR REPAIR MIGHT COST YOU?! 

Check out a breakdown below. The report has broken down major home renovation components into 14 categories.

PLUMBING
Description: 
Showers, faucets, rough plumbing
Average Price: $6,357 per home
Major Brands: Masco, Fortune Brands, Kohler
Trends: “Smart” faucets and shower heads that can work with the Amazon Alexa are becoming increasingly popular. 

DRYWALL
Description: 
Panel used to form interior walls
Average Price: $3,367 per home
Major Brands: USG, National Gypsum, Georgia – Pacific

ARCHITECTURAL COATINGS
Description:
 Aesthetic, protective layer provided to exterior and interior walls
Average Price: $2,023 per home
Major Brands: Sherwin-Williams, PPG, Masco
Trends: Trends are shifting from DIY to DIFM (do it for me) due to an overall increase in the average employee’s working hour as well as an increase in the number of two income households 

ROOFING
Description:
 Exterior layer on roof
Average Price: $4,600 per home
Major Brands: GAF, Owens Corning, Saint – Gobain

SIDING
Description: Exterior layer of the home
Average Price: $7,292 per home
Major Brands: James Hardle, Ply- Gem, Lousiana Pacific
Trends: Homeowners are increasingly mixing and matching siding materials for different aesthetics. Fiber cement and OSB-based siding alternatives have become increasingly popular causing market share losses for the traditional vinyl and stone businesses. While fiber cement is said to be more durable than vinyl, it is also way more expensive.

STRUCTURAL PANELS
Description:
 The layer positioned between the insulation and exterior wall
Average Price: $3,583 per home
Major Brands: Nordbord, Lousiana-Pacific, Georgia-Pacific

INSULATION
Description:
 The layer between the interior and exterior wall that controls the heat transfer
Average Price: $1,157 per home
Major Brands: Owens Corning, Saint-Gobain, Knauf, Johns Manville

HVAC
Description:
 Heating ventilation and cooling system
Average Price: $5,324 per home
Major Brands: Carrier (UTX), Trane (IR), Lennox
Trends: Energy efficiency, environmental regulation and the use of cloud-based technology have contributed to growth in the HVAC industry. Many companies have incorporated cloud-based capabilities into their systems to increase energy efficiency and remotely diagnose issues with the heating and cooling systems before failures occur. 

APPLIANCES
Description: 
Laundry, cooking and refrigeration equipment
Average Price: $2,119 per home
Major Brands: Whirlpool, General Electric, Samsung, LG, Electrolux

CONCRETE / FOUNDATION
Description:
 The structural basis upon which the house sits
Average Price: $9,955 per home
Major Brands: Local companies

FLOORING
Description: 
Bottom surface of the home’s interior, material not specified 
Average Price: $4,048 per home
Major Brands: Mohawk, Shaw, Mannington
Trends: There has been a shift in the market towards more entry-level and value product. We are seeing products such as luxury vinyl tile and ceramic become more and more popular, while carpet’s market share continues to decline. 

CABINETS
Description: Interior storage of kitchens and bathrooms
Average Price: $5,795 per home
Major Brands: Fortune Brands, American Woodmark, Masco
Trends: Cabinets have been the among the most impacted building product  as consumers are favoring value oriented product and fewer “boxes”. 

WINDOWS & DOORS
Description:
 Includes all windows and both interior / exterior doors
Average Price: $8,724 per home
Major Brands: JELD-WEN, Anderson, Masonville
Trends: Manufacturers compete based upon product design, quality, functionality, price and ability to provide service and distribution. New widow type made of composite is said to compete against the vinyl and wood categories. 

FRAMING & LUMBER
Description: 
The skeleton of the home used to support the walls and roof
Average Price: $16,190 per home
Major Brands: West Fraser, Canfor, Weyerhaeuser

OTHER
Description: An aggregate of items outside of the 14 major components
Average Price: $2,107 per home

Total Average Component Cost = $82,642

Remember how I mentioned that the average value content of a newly renovated home in 2019 was $82,642?! That above breakdown is how they came up with the number!

SO WHAT ARE THE KEY TAKEAWAYS HERE?!

(1) We can expect to see an increase in construction and renovation activity.

(2) Product companies are moving away from large conglomerates and are instead spending their time on more focused offerings.

(3) We now know the median cost to repair / build the various home components! 

Feel free to comment on the blog post HERE and let us know what YOU think!

Happy Wednesday!
Erin

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All data and information provided in this email is for informational purposes only. This email makes no representations as to accuracy, completeness, suitability, or validity of any information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All information is provided on an as-is basis.


Data Sources for Today’s Content: 
“Homebuilders and Building Products – Who Builds The House 2019” 
This is a report provided by Bank of America – Merrill Lynch to All Merrill Clients


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