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The Construction Cut with Taylor Rennick- 03/09/20

COVID-19 continues to wreak havoc. The Fed has cut interest rates in an effort to prop up the economy, and the DOW continues to stumble. However, despite the wild fluctuations in the market, homebuilder stocks are looking up. Plus: home remodeling projects are expected to increase in over 94% of markets in the coming year. 

  • A shortage of N95 masks is hitting the construction industry
  • The Fed has cut interest rates to prop up the economy- pushing mortgage rates even lower
  • Freddie Mac says 3.3 million homes are missing from the housing market
  • Home remodeling projects are expected to increase in 94% of markets

Listen to the entire episode below on SoundCloud. 

 

Full Episode Transcription

Welcome back to The Construction Cut- there is a LOT to cover this week. Homebuilder stocks are up, and the remodeling industry is looking solid. Let’s get right to it, shall we? 

It’s Monday, March 9th, 2020. Let’s dive in: 

One thing I’ve seen circulating the news a lot this week is America’s panic over COVID-19, aka the Coronavirus. It’s dominating the headlines on every news site. Last week, the US surgeon general, took to Twitter, as one does, to relay a critical message- stop buying masks. Here’s the thing-- people who work in healthcare need those masks. But the rest of us are buying them up in bulk-- which is NOT safe for those healthcare professionals who need them. They, after all, are the ones who are most at risk for contracting the virus, and in turn, spreading the virus. So- the mask that is in question here is the N95- which is often used in construction- as I’m sure a lot of you already know. Quite a few new stories are circulating in many parts of the country that are highlighting the fact that construction workers in their communities cannot find the masks they need to perform their jobs. A diminished supply of masks could lead to adverse consequences for construction workers who rely on N95 like masks to jeep dust and chemicals and smaller particles away from their nose and mouth. While the company who manufactures these masks, 3M, has said its rapidly working to produce more masks, it seems like they can’t come soon enough. 

The stock market has fluctuated wildly this week. This has been set off by a couple of things. COVID-19, aka the Coronavirus which has impacted hundreds of thousands of citizens on a global scale. The Fed responded to the global health scare by cutting interest rates-- in an attempt to prop up the economy. But let’s back up a little bit. What is the Fed? And why are we talking about it? The Fed is shorthand for the Federal Reserve System. It’s the main bank of the United States. Its job is to make sure the economy runs smoothly- by promoting employment, stable prices, and moderating the interest rates that make up the American economy.

Another thing that it does is “minimize and contain systemic risks through active monitoring and engagement in the US and abroad.” So, to prop up the economy, the feds cut rates. The stock market dropped. Then, Biden won the majority of the democratic primaries, and stocks rebounded. As of today, Friday, March 6th, the stocks have plummeted once more. Did you catch all that? 

So- how does this relate to you all…? Well- let me tell ya: the home builder side of this- it’s looking good. Homebuilder stocks jumped after the news broke- with significant gains coming from names like Taylor Morrison, D.R. Horton, and Lennar. Funny story, when I was little, little- I saw those signs and said: “who is Dr. Horton? Why is he so popular?”. My Mom, who was a commercial real estate agent for 20 years, laughed and then politely corrected me. Anyway, even though mortgage rates don’t follow the Fed’s rate- they more or less follow the yield on the ten-year treasury, which is why mortgage rates are so low. But- the drop by the fed- the central bank, shows high volatility in the markets. It was made as a preventative measure to stem the effects from the Coronavirus. Because of this, ---- investors are staying in the bond market, and now, yields are even lower. SO! The average rate for a 30-year fixed mortgage is currently 3.13%, matching a record low. To put that in perspective, when I started this podcast around six or seven weeks ago, mortgage rates were 3.65%, and that was a huge deal. 

Last week, Freddie Mac weighed in on the housing shortage, coming out with a mind-blowing stat. The US housing market is missing 3.3 million homes. Freddie Mac’s chief economist isn’t pulling any punches: “More than half of all states have a housing shortage, and the shortage is no longer concentrated in coastal markets but is spreading to the middle of the country in more affordable states like Texas and Minnesota.” He goes on to say that states with strong economies, states like California and Oregon, have worsened the shortage by attracting job seekers- because when people leave in search of better housing markets, the shortage spreads. As someone who lived in Portland for many years, I can attest to those rising rents and home shortages. But Portland’s considered part of the coast- so some of that’s to be expected. What’s interesting here is the fact that many of the smaller states are starting to feel a shortage as well- as people continue to move in search of a lower cost of living, those states will need to up their housing supply to accommodate an influx of immigrants from other states. 

The lack of housing units, well, that’s being felt by the consumer more than anything. But it’s great news for the remodeling industry. According to a new study by Metrostudy, big-ticket remodeling increased by 2.5% in the 4th quarter last year. According to their Residential Remodeling Index, economic conditions are better than ever, as the RRI has increased for 31 consecutive quarters. Their outlook on the remodeling industry is relatively optimistic, although they do concede that a recession could stunt the industry’s growth. Since the housing market is so tight- more and more people are choosing to upgrade their current homes. Makes sense. 

Metrostudy reported that 94.2% of the markets analyzed are anticipated to see a growth in project volume this year. However, several large metros aren’t expected to see any growth- and it feels like Florida is getting hit the hardest. Markets that the analysts do not expect to see growth include Tampa, Orlando, Miami-Fort Lauderdale, Jacksonville, the Denver-metro, Houston, and Las Vegas. Interesting. 

This next story is an interesting one- and construction companies and builders in California should pay extra attention. January 1st, 2020, was the deadline for builders in California to begin complying with the 2019 Building Energy Efficiency Standards of the California Energy Commission or, (CEC). The CEC mandated that efficient HVAC filters must be used to trap hazardous particles coming from both the inside and the outside of the home. But some builders took their commitment to green construction even further, adding solar panels, and using new, top-of-the-line methods to stop the transfer of heat and energy through windows and walls. Many builders began adding energy star appliances, and argon gas windows to stabilize the inside temperature. 

On average, the new standards increase the cost of building by a little less than ten grand, but-- these features will save $19k in energy maintenance costs over 30 years. The CEC estimates that by raising the standards for new home builds, homeowners would save around $80 a month on their electricity bills. Great job, California. 

That’s it for this week’s episode. If you’re enjoying the show, feel free to give us a review. Or tell your friends or your business partner! 

Notes on the show, resources, and a full episode transcript are included in the show notes should you want to dive a little deeper into the news. Just swipe or tap over the cover art. See you all next week.