By Craig Webb, President, Webb Analytics
Talk about headwinds! For LBM dealers lately, business conditions are getting progressively more challenging. This in turn means that construction supply operations that want to move forward cannot count on sky-high lumber prices or dramatic increases in demand if they hope to get ahead. They'll only advance through their own efforts.
This fall has brought a number of new challenges and realizations:
Hurricanes Helene and Milton not only devastated wide swaths of the Southeast and Florida--areas that will take years to recover, if ever--they also assured there will be headache-inducing product shortages and price hikes. August's 6% increase for asphalt shingles appears to be holding, Evercore ISI noted, and the hurricane recovery will stress the supply lines for roofing, insulation, and drywall. Meanwhile, Southern yellow pine prices have risen lately, partly from expected demand and partly from how the hurricanes ravaged the fiber supply.
Deliveries also will be slowed. Interstate 40, a major connector between North Carolina and Tennessee, won't even be partially reopened until next spring.
Economic and housing experts speaking at two recent conferences gave modest forecasts for the new-home and remodeling markets. NAHB's Eric Lynch forecast single family starts would reach 1.02 million in 2025 and 1.1 million in 2026, while multifamily starts—after a 32% drop this year—would rise 3% in 2025 to 332,000 starts and another 18% in 2026 to 385,000. Meanwhile, remodeling spending should rise about 2% this year, 2% in 2025, and 2% more in 2026. Harvard’s Joint Center for Housing Studies counts both homeowners’ and landlords’ home improvements and maintenance when it makes R&R forecasts. Abbe Will from the center’s Remodeling Futures Group said that, historically, spending on home improvement and repairs goes up about 5%. But in 2023 it rose only 2.0%, and JCHS’ 2024 forecast is for down 5.7%. In 2025, the amount spent should decline about 0.5%, she said, with lots of variation by state.
Labor issues haven't gone away, and could get much worse given former President Donald Trump's plan to deport illegal immigrants. The Builder's Daily wrote that Trump's campaign promise "could plunge the U.S. construction industry into a labor crisis not seen since the 1950s."
Even if the deportation idea gets abandoned and the status quo continues, labor shortages will threaten growth plans. The U.S. today is employing more construction workers than at any time since July 2007. This is at a time in which total starts struggle to reach 1.2 million. Growing to, say, 1.6 million starts may be unattainable.
The Federal Reserve's long-awaited cut in its lending rates isn't reducing mortgage rates. The 30-year rate stands at about 6.6%, up a half point from where it was when the Fed rate cut was announced. Even if the rate were to return to 6%, that's still higher than nearly six out of every seven mortgages outstanding today. Thus, there will be little incentive to sell an existing home until the rate falls below at least 5.5% and probably lower.
Consumers remain cautious about spending. The National Retail Federation predicts holiday sales will be about 2.5% to 3.5% higher than last year. After adjusting for inflation, that's about the same as in 2023. The New York Fed's most recent survey of consumer expectations did find 31.4% of those surveyed expect to be much or somewhat better off financially a year from now, but 24.5% said they'd be somewhat or much worse off. Both the optimistic and pessimistic numbers exceed how the same consumers thought they were doing a year ago, but it's still slow progress. Before COVID, optimists generally were beating pessimists 40% to 15%.
The longshoremen's union has agreed on a wage increase and will keep working until Jan. 15 under the current contract, but it's still determined to fight the use of automation at ports. That could lead to strikes shutting down the ports next year.
All in all, it's a gloomy picture. At least unlike during COVID or the Great Recession, there won't be a need to draft plans for the possible shutdown of the company.But it will mean meager profits and lots of pressure to perform under less-than-optimal conditions.
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