Retailers expand product offering for new construction applications
January 22/29, 2018: Volume 33, Issue 16
By K.J. Quinn
Riding momentum of positive economic indicators and rebuilding in areas ravaged by hurricanes Harvey and Irma, the U.S. housing market concluded in 2017 on a high note, according to published reports. While labor and land shortages continue to slow down builders, the steady growth rate of new home construction is expected to continue into the New Year.
“The industry continues to under-build housing,” noted Robert Dietz, senior vice president and chief economist, National Association of Home Builders (NAHB). “Thus, NAHB is bullish on growth prospects for residential construction in the years ahead despite rising recession risk.”
The most recent construction data from the U.S. Census Bureau and U.S. Department of Housing and Urban Development (HUD) reports privately owned housing starts in October jumped 14% over September to a seasonally adjusted annual rate of 1.3 million, a one-year high but 3% less than the October 2016 rate. Experts attributed the surge, in part, to communities rebuilding from hurricane damage in the South. The region, which represents nearly half of U.S. residential construction, saw housing starts rise 17% in October over the prior month to 621,000 units.
“The single-family market performed very well, fueled by a mid- to upper-single-digit new home completion rate,” observed Brad Christensen, vice president, business strategy, builder, at Shaw Floors.
The largest piece of the builder business, single-family homes, increased 5% from September to a rate of 877,000 units in October, the highest level in eight months, according to the Census Bureau and HUD construction data. NAHB expects single-family starts to post similar gains in 2018 as demographics remain favorable to housing demand. “Demand continues to outpace supply as home prices are rising faster than income growth,” Dietz pointed out. “This is due to tight existing home inventory conditions.”
Millennials entering the housing market for the first time are expected to further boost single-family home sales. “Stronger gains for single-family home construction could be an important factor for wood flooring since the average new single-family home is larger than most new multi-family housing units,” explained Rob Brockman, channel marketing manager, contractor, builder, developer, property manager, Armstrong Flooring.
The Census Bureau and HUD reported building permits in October rose nearly 6% above September to a seasonally adjusted annual rate of 1.3 million, which is nearly 1% higher than the October 2016 rate, while permits for multi-family homes jumped nearly 14%. Housing permits provide a snapshot of how much construction is in the pipeline as ground is usually broken within 30 to 60 days after a permit is issued.
New residential construction data can be skewed by peaks and valleys in key sectors. For example, a bulk of the spike for October housing starts is attributed to multi-family as units of five or more rose 37% from the previous month. Housing starts in the Northeast skyrocketed 42% from September to October, but the number of single-family units declined 22%, according to the Census Bureau and HUD.
The broad recovery could ease concerns within the flooring industry about the housing market, industry members say, which represents an estimated one-third of residential sales. As 2017 wound down, all economic indicators pointed in the right direction, including the labor market, mortgage rates, manufacturing and retail sales data. “The residential market in our area has done well,” said Tom Urban, general manager, Great Lakes Carpet & Tile, Lady Lake, Fla. “The start of the year was fairly flat and then the last few months have done better than expected.”
While published reports indicate homebuilder confidence is at a high level amid optimism about current sales conditions and buyer traffic, all is not well. “The limits on single-family construction remain on the supply side of the market with labor shortages, lack of building lots, tight builder financing and rising building materials costs as the leading business issues,” NAHB’s Dietz observed.
The availability of qualified labor in all trades remains a major concern and is limiting industry output. While builders are adding jobs, attracting the next generation of construction workers remains a long-term challenge. Some regions face a shallower pool of craftsmen than others, which can directly impact speed to market.
The labor shortage has a ripple effect into the flooring industry as builders tend to wait until materials are needed before releasing purchase orders. Depending on the category, this practice can sometimes cause problems with making deadlines. “Consequently, builders have pushed the responsibility to us, the flooring contractors, to be sure jobs are ready ahead of us,” noted Larry Barr, president and co-CEO of Floors Inc., Southlake, Texas. “The builder market is having a difficult time hiring quality people to manage their construction process.”
Dealers that supply builders face a similar issue as the lack of qualified installers is reportedly contributing to driving up labor costs, inhibiting timely installations and compromising service. “In the past, flooring installers had first-, second- and sometimes third-generation family members involved in the business, but now that is rarely the case,” Shaw’s Christensen pointed out. “The mid-2000s downturn forced many flooring installers into other trades and they have not come back.”
Recognizing there is not enough skilled labor in its local market to keep up with demand, Great Lakes developed a program to recruit young people into the flooring business. “We are currently working on a tile program where someone can get started with us with no experience,” Urban explained. “We will train through manufacturers and then with our best crews to keep ahead of the curve and provide our customers with the very best installations.”
Suppliers, too, are doing their part to help dealers meet these and other builder needs.
“There’s a continual movement to build homes more efficiently,” said Dan Butterfield, Dal-Tile’s general manager, builder channel. “Land, labor and lending are key factors that can impact the overall cost of a project. We have to continually come up with value-oriented, fashion-forward products that meet our builders’ demands and keep costs manageable.”
In addition to industry bottlenecks, trends within new construction stand to influence flooring sales in the New Year. “The prices of land are getting expensive, which is contributing to decreasing the footprint of the home,” observed David Holt, Mohawk Industries’ senior vice president, sales. “Builders are looking for ways to keep housing prices low so people can qualify for mortgage loans.”
The shrinking median home size is also a consequence of changing demographics as more millennials and younger Generation Xers enter the market. “We have [observed] for the last few years that most builders are offering smaller two-bedroom homes,” Great Lakes’ Urban noted. “Villas are now becoming the most important and fastest-selling home. The large premier homes that we saw years ago are becoming a thing of the past.” Smaller unit sizes limit flooring purchases and reduce ticket prices due to less volume and upgrade sales.
Hard surface surge
As homes become smaller, flooring choices are impacted in part by how these spaces are utilized. For example, carpet is projected to remain a go-to product for living rooms although hard surfaces—led by LVT and WPC products—are growing at a much faster rate. Further driving demand for hard surfaces is the increasing number of open floor plans and single-floor living spaces, according to industry members.
“Consumers are trending toward [installing] a hard surface throughout [the home] to keep the open feel of the floor plan,” explained Ron Dunn, co-founder and co-CEO of Alliance Flooring, the parent company of CarpetsPlus Color Tile, Carpetland USA Color Tile, Floorco and Clean Touch Pro. “These features coupled with the affordability of [engineered vinyl plank] flooring are resulting in increased hard surface sales and higher dollar upgrades over carpet.”
Nonetheless, new-home buyers are eager to choose different floors for individual rooms, experts noted. For example, laminate “looks great in the home and is very dimensionally stable,” Mohawk’s Holt said. “It’s always been affordable, performs better and the natural looks are so much more realistic than a few years ago.”
In addition, carpet, ceramic and hardwood are often selected for main living spaces and bedrooms. “We will continue to see category trends shift in single family from carpet to hard surfaces, as well as from laminate, hardwood and ceramic to non-sheet goods resilient products,” Shaw’s Christensen added.
Industry members cite the importance of educating new-home buyers about the features and benefits of specific floor coverings, which encourages them to step up and buy. This is especially important in price-sensitive markets where hard surfaces are generally more expensive than carpet.
“We spend a lot of time on training not only with the independent retailer,” Armstrong’s Brockman said, “but also the consumer through our website [armstrongflooring.com] and through marketing materials and model home displays.”
In a fiercely competitive market with changing customer demographics and demands, research shows builders are striving for any advantage through data analysis of their businesses and determining where they can become more efficient and effective. The pressure is on builder dealers to provide more than just installed floors. “Flooring contractors need to continue to focus on the relationship and determine on a builder-by-builder basis what it means to be a strategic partner for them,” Brockman said. “Oftentimes it involves some level of integration that raises the level of communication in service and meeting budgets and timelines.”