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2017 Homebuilding and Construction Materials Outlook

01.11.17

Chris Fisher, Managing Principal of Ducker Worldwide – offers important considerations for the industry in 2017. These include helpful advice for business operators and outside investors looking to accelerate growth and manage risk.

Key Themes for Homebuilding and Construction in 2017:

Housing recovery and overall construction spending growth curve more like a walk up versus a steep climb – requires supply-side players to optimize target marketing strategy

  • Nationwide housing starts approached 1.11 million units in 2015 – a 10% improvement over 2014, as single-family starts grew to 715,000 units.
  • As compared with 2015, 2016 construction began on 5% more homes – on a seasonally adjusted, annualized basis – to 828,000 units nationwide.
  • Privately owned housing starts in November were at a seasonally adjusted annual rate of 1,090,000 – however, December numbers aren’t in yet. This is likely to adjust downward after a strong October, a weaker than expected November and a typical, seasonally affected December.
  • Builder confidence in the market for newly built, single-family homes jumped seven points to a level of 70 on the National Association of Home Builders index. However, comments from Ducker’s clients indicate confidence is high, and “calibrated” to the new norm in housing, is highly fragmented across region and home type/classification.
  • The biggest challenge many suppliers (product and channel) face is balancing the supply and service among the most appropriate regions and customer segments. Make sure you have prioritized your targets and aligned operations – the value is in managing the demand pipeline versus responding to sales.

As housing construction accelerates and repair/remodel continues – building product manufacturer success will hinge more on channel optimization than product differentiation alone

  • Ducker’s expansive datasets regarding contractor and builder purchase volumes and loyalty indicate distributor value-add and positioning becoming more critical than product brand alone.
  • Top-performing Ducker clients have aligned with profitable and sophisticated distribution partners, which demand more margin but deliver higher value in the long run.
    • Financial strength, superior operations and technology-enabled solutions allow distributors to secure better prices, margins and product leadership.
  • As distribution continues to consolidate, product manufacturers who have Tier 3 or 4 positions within distribution will need new strategies to win shelf space and/or top brand recommendation at the counter.

Recent large-scale acquisitions (i.e., Boral/Headwaters) signal the next big cycle of large-scale industry consolidation in building products. Are you ready?

  • If recent success is any indication of future activity, then large-scale ventures and acquisitions are likely to be on the agenda for 2017. Recent transactions, such as Forterra, Boral/Headwaters, GAF/Icopal and distribution ABC Supply/L+W Supply – along with some pending IPOs – certainly make the building products industry attractive for dealmakers.
  • Private equity investors have plenty of “dry powder” on hand to put into transactions, and the lending market is stabilized. Ducker offers a full suite of identification and receptivity ideas, but several sectors we recommend should be on any M&A list:
    • Low-slope roofing and accessories
    • Floor tile and installation products
    • Aggregates and cement products
    • Smart building technologies and building access products
    • Windows/doors and fenestration
    • Lighting and hardware

The aging labor force and shortage of construction labor not just causing delays – but driving new changes in field construction and building product innovations

  • Builders and remodelers are looking to distributors to play a more important role in managing their labor shortage or inconsistencies, through more on-site support – beyond typical stock and scatter of materials.
  • Desk staff at distributor dealers providing the hands-on advice and training to new labor entrants, at a more frequent and detailed level than in past years.
  • Building product producers are focused on creating products that are easier/faster to install, and require less expertise.
    • Prefabricated – prefinished components (walls, trim, coated siding, etc.)
    • Measurement-marked materials that expedite install
    • Lightweight products for moving/installing higher quantities per man-hour
    • Applications using adhesives versus skilled tools and equipment (i.e., adhesion in low-slope roofing)

 

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