December 20, 2018

A Look at What’s in Store for 2019

by Anthony Wright

 

A recession? A trade war? Rising interest rates?

Those are just a few of the possible challenges faced by the building and construction industry as we head into 2019. With those possibilities, there’s some understandable trepidation about the new year. But there are ways to stay ahead, along withsome unique opportunities I think will present themselves. 

Here’s a look at what I’m expecting.

The Good. Where should fenestration professionals be looking to excel in 2019? My observations tell me that the home renovation market will perhaps be the biggest area of opportunity. 

Why? Consider that while builders in the United Statesconstructed approximately 1.2 million new homes throughout the course of the past year, about 123 million homes already exist—representing a much larger piece of the pie. 

And there’s reason to expect many current homeowners might stay put for a while. We’ve seen mortgage rates on the rise, and homeowners locked into lower rates from recent years past might be less likely to be interested in a new mortgage. And if homeowners are staying put, they’re more likely to be looking into some of those “big ticket” renovation projects. 

In fact, most homeowners tend to take on big reno projects about the time their homes reach 20 years or older. Guess what? The current median age of the U.S. housing stock is at 37 years, and more than half of existing homes are over 40. That’s reason to believe in the renovation market in 2019, as well as over the next several years.

The Bad. The biggest question mark looming over 2019 is the state of the U.S. economy and how that’ll impact new projects this year. A slowdown is expected by most economists—the question is, how significant will the slowdown be?

Along with those rising mortgage rates we mentioned, the U.S. Federal Reserve continues bumping up the fed funds rate. We’re returning to a normative monetary policy, and the era of “free money” is over. And that applies some natural brake pressure to the economy. We’ve also seen some impact already from the IRS’s new state and local tax (SALT) rules, particularly in high-tax states like New York and California, which could slow new construction. 

Higher raw material prices and tariffs have been a driver of inflation this past year and threatened to be even more so moving into the new year. The United States previously scheduled tariffs on Chinese goods to rise from 10 to 25 percent starting January 1. Thankfully, the administration has agreed to a 90-day window to settle the trade dispute between the United States and China. Keep your fingers crossed. It seems the tariff war may be more a negotiating ploy than a long range reality, and thus may be short lived.

The Ugly. Well, maybe not “ugly.” But let me explain.

As far as the housing market goes, we’re in a bit of a conundrum of affordability, mobility and mixed-up demand. I mentioned the reluctance of current homeowners to “move up,” but in some cases it’s not simply reluctance. The millennial generation, representing the largest portion of first-time homebuyers, continue to experience a major lack of affordability when it comes to buying versus renting. Meanwhile, builders have spent the past several years, following the Great Recession, taking advantage of attractive margins on luxury homes and condos. But demand has seemed to peak for those types of homes, and it’s possible we’ve seen those presently unsold remain in that state for a while and at the lower, entry-level end of the market, a spike in demand. 

We’ll be keeping our eyes on each of these developmentsthroughout the year. Let’s see what 2019 brings! 

Questions or comments? Anthony.Wright@Quanex.com.

 

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Posted: December 20, 2018 by Anthony Wright Filed under: