WMA Headlines January February 2020July 21st, 2021 by Nathan Hobbs
Budget Beaters: Despite Issues of Affordability, 2020 Looks Good for Millwork
By Tim Hicks
There’s a perception out there that suggests millennials don’t want to own homes. Recently, I disagreed when I heard this comment in a roundtable discussion. Three millennials weighed in on the topic, explaining they have a desire to eventually own a home. All three shared a common insight into why they aren’t current owners: affordability.
One millennial participant explained that he lives 10 minutes from his workplace but would have to move more than an hour away to afford a single-family home. Considering wage growth (which is on the rise, albeit slow), lower mortgage rates and more affordable starter homes built by large builders—over the next few years we should see a percentage increase in millennial homeowners. At the same time, even with those improvements, the effects of affordability on the millwork industry will be varied.
Many of builders’ new designs for first-time buyers include door, window and trim packages that are 25-50% less than those included in custom packages and move-up markets. Supplying more homes is great news, but fewer dollars per package creates challenges to maintaining the same profitability.
Some areas of the country have been affected more by affordability than others and communities are reacting differently. In the Bay Area of California, where home ownership is at a seven-year low, tech giants Apple, Google and Facebook have together pledged $5.5 billion to help make housing more affordable. Most of this money will go toward mortgage assistance for first-time buyers, but some has been pledged for other types of assistance, such as affordable land donations. It will be interesting to see if this corporate assistance trend continues in other regions of the country.
Then there’s multifamily. It appears that this category will remain very strong throughout 2020. Statistics show vacancies are currently at 3.6%, the lowest level since 2000. Growth projections certainly depend on the U.S. economy continuing to grow at a positive rate and unemployment numbers staying in the same range as 2019, but commercial loans for multifamily construction are at an all-time high, assuring another year or two of solid growth in the segment.
Another issue that you might expect to impact affordability includes tariffs. But the negative effects of tariffs that many were concerned about in 2019 never seemed to develop, as other sources of product became readily available. By that token, although the concern for increased tariffs in 2020 is real, it appears that such a change would have minimal impact on the millwork industry.
Lastly, in 2019 there was no slowdown in mergers and acquisitions across all channels of the millwork industry; and in 2020 we can look for this trend to increase. They always have some regional effects for the industry, but no significant change of costs or product availability should occur.
Overall, I see a very healthy year for the millwork industry in 2020. All segments—single family, multifamily and remodel/replacement—should benefit from increased household creation, wage growth, and sustained low mortgage rates.
Tim Hicks is chairperson of the MA and vice president of Clay Ingels Co. LLC.
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