Building Products and Materials

Will the renovation & repair surge continue?

The Great Renovation

While “the Great Resignation” has grabbed headlines recently, a quieter but equally striking “Great Renovation” has powered growth in the residential building products sector.

Recent Harris Williams consumer research reveals strong ongoing intent among consumers to spend money on home renovations. In 2021, the majority of consumers (54%) said they were spending more on their homes than before the pandemic. This year, 65% of consumers who say they have spent more on their homes during COVID-19 plan to continue spending at that higher level even after the pandemic ends. That’s a larger portion of consumers reporting the same spending intentions in 2021 (see Figure 1).

Figure 1: Consumers Plan to Keep Spending More on Their Homes

Source: Harris Williams Consumer Research

As shown in Figure 2, the vast majority of consumers who have recently performed renovations have plans for additional work (75%).

Figure 2: Three-Quarters of Consumers Plan on Additional Renovations

Source: Harris Williams Consumer Research

Recent market data supports this positive outlook for a continued surge in demand for home renovations. According to the Harvard Joint Center for Housing Studies, homeowners’ spending on renovations and repairs are expected to keep growing by double digits through 2022 before returning to their longer-term growth trajectory (Figure 3).

Figure 3: Homeowner R&R Spend Expected to Continue Robust Growth Through 2022 

Recent market data supports this positive outlook for a continued surge in demand for home renovations. According to the Harvard Joint Center for Housing Studies, homeowners’ spending on renovations and repairs are expected to keep growing by double digits through 2022 before returning to their longer-term growth trajectory (Figure 3).

$ in Billions, US Homeowner Improvements & Repair Spend (note 2021-2022 quarterly bars represent rolling 12-month averages)
Source: Harvard Joint Center for Housing Studies

Figure 4: Years of Underinvestment Contributing to Strong Demand for New Homes and R&R

Likewise, according to the U.S. Census Bureau, while housing starts are finally back to long-term average levels, years of underinvestment have created a significant inventory shortage. That shortage contributes to strong continued demand for new homes as well as renovation of existing homes (Figure 4).

U.S. HOUSING STARTS AND EXCESS INVENTORY (1970-2021)
000s of Houses
Source: U.S. Census Bureau (1. Long-Term Straight Average from 1980-2000 2. Cumulative Housing Starts Minus Cumulative Long-Term Straight Average)

Figure 5: U.S. Homeowners in Historically Strong Financial Position

Consumers are generally in a good position to act on their need for new homes and renovations and repairs. Data from the New York Federal Reserve Bank indicates that U.S. homeowners are in historically strong financial health: 83% of borrowers during the period between 2019 and 2021 had credit scores of 720 or above, compared to 55% between 2004 and 2006 (Figure 5).

U.S. HOMEOWNER CREDIT SCORES
Source: New York Federal Reserve Bank

Headwinds on the Horizon?

While strong tailwinds still prevail, a few countervailing trends are also making their presence felt.

For instance, Harris Williams’ latest consumer survey shows this year’s planned renovations have smaller price tags than last year. Around half (51%) of consumers plan to spend less than $5,000, versus 25% of consumers staying under that ceiling last year. Likewise, the portion planning to spend more than $50,000 shrunk from 15% to 6%.

Tim Webb, a managing director in the Harris Williams Building Products and Materials Group, says economic shifts are playing a role in this changing sentiment. “It’s likely we’re going to see increasing interest rates, which will impact consumers’ appetite to take on new loans for large renovations,” he says.

Ty Denoncourt, a director in the Building Products and Materials Group, adds, “Personal savings rates are back to normal levels after the historic highs of the past few years. Those higher-than-normal savings rates were supported by temporary government stimuli, and by less spending on services amid pandemic restrictions.”

Three Themes for Differentiation

Additionally, Webb, Denoncourt, and colleagues in the Building Products and Materials Group are seeing three dynamics in today’s market that could impact the consumer yet will also provide angles for businesses to differentiate.

Inflationary Costs: “The cost of renovations has increased, and it is natural that rising prices would slow down demand,” says Webb. “This is a tougher theme to differentiate on unless you are the low-cost provider, and we don’t consider that a winning formula long-term.”

Product Availability: As Webb explains, this theme is driven by the ability to source key components and inputs, by manufacturing labor shortages, and by increased demand in the market: “The lead time to get products has grown so much that consumers might choose to just wait six months versus launching a renovation project amid year-plus lead times for key features.”

Harris Williams research reiterates this trend. When asked which factor was most important in choosing a renovator, “availability” shot from last place to second this year, chosen by 26% of consumers. In first place: “price,” also reflecting the market forces impacting the industry and its end customers.

Companies that can provide products that reduce the install or contractor labor can distinguish themselves.

-Ty Denoncourt, Director

Webb sees opportunities in these shifts. “If you have a more professionalized business with a better handle on supply chain management, that could mean the difference between taking on and turning down work,” he says. “The same applies to the building products and materials companies supplying those renovators. Once you prove yourself able to be a steady source of supply, you create lasting customer relationships, and you also create opportunity to charge a premium for those products.”

Labor Shortages on the Install: “It is difficult to find contractors,” says Denoncourt, “because they are short on labor while managing elevated demand. Companies that can provide products that reduce the install or contractor labor can distinguish themselves.”

“An example is providing prebuilt, modular components that can be put in place as is without additional handiwork. Another is kitting: providing all the pieces and parts required to complete a task or project in a single shipment, thus preventing delays caused by a shortage of a critical item.”

Building on a Boom

As our research shows, consumers plan to continue spending on renovations and repair, although inflation and rising rates are putting a slight squeeze on budgets. Homes continue to be a focus of attention and spending even as return-to-work plans might mean fewer days spent in the home office.

This steady demand for renovations and repair may have made it more difficult to find a contractor, but it positions building products and materials companies well for sustained growth. Those in the best position to gain share will have distinct value propositions and innovative ways to better serve their customers amid shifting headwinds and market dynamics.

Contact our senior bankers to learn more.

The Harris Williams Building Products and Materials Group has closed transactions across a broad spectrum of building products and materials sectors. The Group’s expertise spans from lighter building products used in residential and commercial markets to heavy construction materials used in infrastructure applications. Within these sectors, our firm has worked with clients that touch every aspect of the production, distribution, and related construction services in these markets.

Our firm has developed strong relationships with key global strategic and financial buyers around the world, and through years of experience, we have developed a firm understanding of how to successfully navigate the unique issues for transactions in the industry.

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