Posted on Aug 24, 2022

Against the backdrop of low nationwide home inventories, many homeowners are deciding to hunker down and invest in home repair and remodeling projects.

This period of unprecedented home construction activity signifies opportunity, not just for building supply manufacturers but also businesses in adjacent markets.

“The limited amount of macro data you can see on it, as well as what we’ve heard from our coverage, suggests that yes, people are willing to spend on their homes,” Jay McCanless, senior vice president of equity research for Los Angeles-based investment firm Wedbush Securities, told MiBiz.

McCanless specializes in the building products and homebuilder industries, directly covering large publicly traded companies like Chicago-based AZEK Building Products Inc. and Masonite International, which designs and manufactures interior and exterior doors. McCanless also has covered Grand Rapids-based global wood products manufacturer UFP Industries Inc. as it has grown into an industry heavyweight.

Throughout these interactions in the market, McCanless can safely say people are investing in their homes.

“What we’ve seen from those companies is, yes, there is an increased willingness and desire amongst homeowners to improve their exterior space. …We’re still seeing a lot of demand for repair and remodel but also to improve and expand,” McCanless said.

‘All signs point up’

Two primary barometers of the home repair and remodeling industry indicate that activity continues to grow as the United States lifts out of the pandemic and home inventories struggle to catch up.

The Leading Indicator of Remodeling Activity (LIRA) report compiled by the Joint Center for Housing Studies at Harvard University is one such tool. This quarterly report, last released in January of this year, chronicles national home improvement and repair spending on owner-occupied homes. The latest LIRA report highlighted the boom in home repair and remodeling, estimating that it could eventually peak in 2022.

Annual spending on homeowner repairs and renovations could balloon to $430 billion in late 2022 as the sector grows by double-digits. However, the report stated that this growth rate could simmer shortly as rising materials costs and labor scarcity temper it.

The latest National Association of Homebuilders Remodeling Index that was released for the first quarter of 2022 sat at 86 of 100, indicating strong confidence. The report showed a similarly strong score of 84 for the Midwest region specifically.

The index is compiled through a survey that gauges the confidence of remodelers around the country, asking them about everything from the current market for large, moderately sized and small remodeling projects to the current rate for leads and inquiries and the backlog of remodeling projects.

In West Michigan, UFP Industries has benefitted from this boom in home remodeling and repair. The $8 billion company maintains a $3.4 billion retail segment of its business, which supplies big box stores, independents and buying co-ops. The segment has been an anchor for UFP recently.

While company officials declined to provide forward-looking statements on what they expect from its business, UFP Spokesperson Dick Gauthier aknowledged the current macro trends.

“Rising interest rates make it harder for first time home buyers to buy their first property at current prices,” he said. “And current home owners would be reluctant to move as they’d be giving up a low rate while being faced with higher rates in their new home. The result will be people keeping their homes much longer than planned, potentially hurting businesses that rely on housing turnover, while potentially helping businesses that serve the repair and remodel sector.”

“A ‘Let’s sit tight for now’ position will look similar to what we saw during the pandemic — lots of homeowners improving the spaces they already occupy,” Gauthier added.

Retail led UFPs three business segments with $703.9 million in net sales in its fourth quarter of 2021 and finished the fiscal year at $3.42 billion — a 58-percent increase from the previous year.

The company indicated that, to seize growth opportunities, it would increase its capital expenditure target this year to a range of $175 million to $225 million, an increase of $151 million. These investments come in the form of automation, robotics and technology in addition to added capacity for the Deckorators and UFP-Edge brands, two retail brands that are performing well for the company. Deckorators offers a line of composite decking supplies while UFP-Edge is a line of siding, pattern, trim and structural posts.

McCanless acknowledged UFP’s strong performance in that segment as of late and noted that companies he covers have made similar investments. This includes AZEK Building Products’ recent investment in additional plant capacity. Dallas-based building materials manufacturer Builders FirstSource also recently carried out an acquisition of a company with a strong presence in the repair and remodel space.

“I don’t think they would have made that acquisition if they felt like repair and remodel and improvement spending would be going down,” McCanless said. “From what we can see, all signs point up.”

This frenzy also is apparent in big box home improvement stores. The latest quarterly sales for Home Depot rang in at $35.7 billion, an increase of $3.5 billion from the same quarter last year.

Opportunities elsewhere

Meanwhile, companies that produce raw materials or repair and remodeling supplies aren’t alone in benefiting from this time of strong growth in the home improvement industry.

Zeeland-based global furniture company MillerKnoll Inc. has long placed an emphasis on serving the residential market. As more homeowners fix up their homes, furniture is often a part of it — and not necessarily confined to a home office.

“Due to the lack of available housing inventory in the U.S., we expect both homeowners and renters to continue investing in improving their existing spaces,” said Ryan Anderson, MillerKnoll’s vice president of global research and insights.

“This is amplified by people’s greater awareness of how their homes need to better serve their needs (after) having spent so much time in them during the pandemic,” he said.

While MillerKnoll has spent part of the pandemic shifting to meet the needs of its corporate clients that had to facilitate larger remote workforces, it has long catered directly to residential clients.

The company is home to residential brands like Design Within Reach (which is soon opening a showroom in Grand Rapids’ Breton Village), HAY and Muuto.

“Perhaps the biggest change we’re seeing is a purposeful focus on restoring their homes as places of respite,” Anderson said. “This includes refreshing homes with more natural light, warmer colors, organic materials, comfortable furnishings, plants and outdoor spaces to boost emotional wellbeing.”

“This also includes making sure that some of the functional demands of our homes, such as supporting working and learning, are better contained and don’t spill over into our spaces for resting, contemplating and socializing,” he added.

Anderson also noted that multi-generational households are at their highest levels in the United States since World War II, and households are adjusting to meet that dynamic.

“This was true before the pandemic and accelerated during COVID due to people moving in with each other during quarantine, so many existing homes are now being improved in the ways I described to serve a greater range of individuals and activities who now inhabit those spaces,” Anderson said.

Source: Mibiz.con