Hardware Retailing

DEC 2018

Hardware Retailing magazine is the pre-eminent how-to management magazine for small business owners and managers in the home improvement retailing industry.

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Page 43 of 78

December 2018 | HARDWARE RETAILING 39 Construction is more vulnerable to price changes due to tariffs than other industries because there's such a lead time. A contractor may bid on a project, but they won't be buying materials for three to nine months. They're exposed to volatility to materials costs as they're occurring. That makes them cautious. If you're buying materials and making the product immediately, then when prices go up, you can pass the cost directly to consumers. In construction, you have to hedge more because of the time lags between when you're making decisions and when you're actually going to purchase products. HR: How is the remodeling market doing? KB: We're seeing solid remodeling numbers. Rather than trading up to a new home, people are more likely to be fixing up their homes. Hurricanes, fires and other natural disasters add to spending in that market, too. An undersupplied construction market, strong house prices and more natural disasters than usual are generating pretty healthy growth. We produce a leading indicator for remodeling activity that suggests market activity is going to continue to grow in the 7 or 8 percent range for the remainder of 2018 and into 2019. Those are very healthy numbers. HR: What can we expect to see in the housing market in 2019? KB: I think we will see more of the same. Single- family construction has been moving up at a high single-digit pace for several years now, but we're still well below the long-term trend. I think we're going to have about 900,000 single-family starts this year. That number historically would be well over a million. HR: Is it surprising things haven't picked up more? KB: Yes. Typically, when you get strong house price gains, which we have seen recently, that encourages builders to build more. The problem is that land prices are rising, the cost of government regulation is driving up prices of homes, there's a construction labor shortage and there's inflation in building material costs. It's hard to build affordable or entry-level homes at prices a moderate-income family or household can afford. Just getting folks into the market is a problem, but that's essential for a well-functioning housing market. The strength has to start at the bottom. In addition, house prices have been growing more rapidly than household incomes. That creates an affordability problem. We're seeing that regionally across the country. It's not a huge issue nationally, but it is a very significant problem in most of the coastal markets across the country. We're seeing solid remodeling numbers. Rather than trading up to a new home, people are more likely to be fixing up their homes.

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