Builders “have no choice” but to pay higher prices for lumber despite the dramatic price hikes in recent months, housing expert Ivy Zelman says.
“I won’t say they aren’t worried, but they have to take it,” Zelman, CEO of Zelman & Associates, said Oct. 18 in Phoenix during her keynote speech to the National Lumber and Building Material Dealers Association’s national conference. One reason why they can, she said at the ProDealer Industry Summit, is that the stock market appears to be okay with the gross margins of 19% to 22% that publicly traded companies are reporting, so pressure from Wall Street to boost profits by tamping down prices isn’t that strong.
Zelman said at another point that inventory issues are a big problem for dealers. There’s a lower-than-normal supply of homes available for sale today. “There are plenty who will balk, but they have to take your prices,” she said.
“The only way to mitigate home price issues is for builders to build more homes,” Zelman maintained. “Build it and they will come.”
Finding land and having to pay more for it is a bigger problem for builders than product prices, Zelman told the building material dealers. “Land is always a problem with them, but their ability to find and finish lots ... is what’s pushing them to the outer rings [of metro areas],” she said. “They are probably going to have to be more pioneers [in developing new areas] than they were were in the past.”
Count Zelman as a housing bull. She expects growth to continue in 2018 and 2019, and believes supply won’t meet demand by 2019 despite the increases in construction work. One reason why, she said, is that millennials are getting married, having children, and heading to bigger homes. Forty percent of all the mortgages purchased by Fannie Mae, Freddie Mac and the Federal Housing Administration involve home deals for millennials, she said
“The American dream is alive and well, and it’s in the air,” she declared. And millennials prefer move-in-ready homes, Zelman added.
Zelman predicted starts will continue to grow 8% to 12% annually and that construction will increasingly take place on less-than-prime lots. “C Locations have surpassed B locations for development,” she said. “We’re going to have sprawling.”
The summit marked NLBMDA’s 100th anniversary and touched on some of the concerns dealers face today. One of those concerns—finding workers in a population that is unaware of LBM’s good qualities—manifested itself in T-shirts handed out to each attendee that declared on the back “lumber dealers are sexy.”
Strategic planning in an age of uncertainty occupied a panel of executives that came on stage two hours after Zelman.
“We seem to be changing our plans more often,” said Joel Russell, COO of Millard Lumber, Omaha, Neb. The company still writes a formal strategic plan, but also creates documents with shorter time spans. And with its most visionary plan, Millard converted that paper into a narrative that lays out the company’s plans in a narrative form. “A guy working on a truss line isn’t going to read a SWOT analysis but he will read a narrative,” he said. ”There used to be an art in storytelling. The power of telling a story connects to people way better.”
Russell also said he’s found value in sharing his plans with friends who run businesses far removed from construction supply. Their perspective from afar has led him to think about his own up-close view of Millard Lumber in new ways, he said.