We all read in various sources of news the “experts” prognosticating on when or if markets will improve. While they all try to sound like they know what they are talking about, it is easy to get the feeling that most really have no clue.
On Saturday, I was playing golf with a realtor friend who had a take on housing and the repair/remodel markets one does not see offered by the “experts.”. His belief, and that of many of his peers, is that a huge pent-up resale market will happen as soon as mortgage rates near 5%. The rationale is that a lot of people are simply waiting to move, and they are not making improvements to houses they know are not their long-term solution. He believes that once rates drop several times from the mid-6 % rate now to nearly 5%, we will see a considerable number of homes hit the market. Consequently, he feels the remodeling activity will pick up significantly once these people get moved.
New construction activity has been slow but steady. However, the remodeling segment has been a drag on the market. Some of this is due to consumers’ choice not to remodel (everyone who wanted to already did so), and undoubtedly, some is due to inflation, where discretionary money for things like new kitchens is more limited. Most home equity lines of credit are variable, so consumers are aware of the added cost of using home equity as a source of funds for projects. Once rates drop, this feeling should also moderate.
Results from the major cabinet manufacturers mirror his viewpoint. In the American Woodmark Corp. (AMWD) August 27th earnings call, they noted, “Our teams delivered net sales of $459.1 million, representing a decline of 7.9% versus the prior year. This is below our expectations provided during last quarter’s call due to weaker demand during the summer in the remodel channel. Year-over-year growth in single-family housing starts have slowed over the past three months, putting downward pressure on cabinet installations in future quarters.” Looking ahead, American Woodmark also noted, “Our outlook for the industry in fiscal year 2025 assumes the repair and remodel market will be down mid-single digits and new construction to be at mid-single digits. Within R&R, larger discretionary projects will trend worse than the overall market and are projected to be down high-single digits.”
Closer to home, this is exactly the scenario my daughter and son-in-law are working within. They need more room with two grandkids. The office has become a playroom, and their home has gotten way smaller with the arrival of #2. While there are projects they want to do, they see only short-term benefits to doing so when they are actively looking to move. In talking over the weekend, every house they have looked at has had remodeling projects that would immediately be undertaken; they are just sitting on the sidelines, waiting for rates to drop.
In short, the anticipated Federal Reserve rate drops and the likely drop in mortgage rates may have a greater than anticipated effect on Alder demand. Hopefully, this improvement will change the fortunes from the oft-challenging 2024 to a more normal level of demand for cabinetry, millwork, and furniture in early 2025.
Rick Barrett
Cascade Sales Manager
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