Takeaways from Goldman Sachs 26th Annual Global Retailing Conference Housing Panel
Earlier this month, I was honored to be part of the Housing Panel at the Goldman Sachs 26th Annual Global Retailing Conference, moderated by Kate McShane, Retail Hardlines Analyst at Goldman Sachs, alongside Todd Tomalak, SVP Research at John Burns Real Estate Consulting. The overall sentiment on the panel was that the housing market is healthy and demand for home improvement and furnishings is strong. Here are a few key takeaways:
The home improvement industry remains strong. Houzz research shows that residential renovation activity remains strong year over year, and that home professionals in both the construction sector and architectural and design sector remain confident in the health of the industry. Two key factors impacting this are consumer confidence and aging housing stock in the U.S. that needs to be updated. In addition, Baby Boomers are driving the home improvement industry and this group has benefited from significant gains in wealth as their home values have increased.
Differences in regional cycles. On the housing side, there has been a major deceleration in home price growth in higher-priced areas, coupled with low inventory. In contrast, recovery from the recession is just now reaching more affordable areas, which have seen remarkable recovery in home prices in the past year. For home improvement, we’re seeing nearly the opposite with a solid showing of investment in coastal, more expensive areas driving home improvement spending. These areas are investing in discretionary projects like kitchens, bathrooms and major additions. We should see increased home improvement spend in more affordable areas in the near future, following a lag of few quarters to a year. Also noteworthy, John Burns Real Estate Consulting cautioned that they’ve seen a slow down in the luxury market.
Labor shortages are a headwind to the industry. Through the Great Recession there were two million workers that exited the residential construction market. Today, we’re seeing a large discrepancy between demand and the supply of labor, with a home improvement market that has far surpassed peak levels and a labor market that is still 250,000 workers short. Houzz research shows that 85% of contractors report moderate to severe labor shortages today versus 75% two years ago. Overall, labor supply is keeping up with demand because the professionals in the home renovation community are so resilient. However, we expect pressures to increase as strong demand continues, which may lead to increased prices for homeowners.
Financing spurs home activity. Financing has a larger role in spurring home activity today than it ever has in the past. While Houzz research shows that only 15% of home improvements are financed with a secured loan, HELOCs being most common, this jumps to 31% for projects $50K and up. While we see that cash-out refinancing does not impact the volume of projects a homeowner takes on, projects financed by this method tend to have much higher spend. What’s not accounted for in this data is loans through FinTech companies, which we anticipate will become a larger financing source for home improvements in the future.