Remodeling Market Memo

ORLANDO — The largest residential construction industry trade show, The International Builders Show, just completed a four-year run in this city on Feb. 16. Having attending this show annually since the late 90s, I can say that the show certainly reflected a slower housing market generally, but it was not as slow or down as one might have expected. The National Association of Home Builders, which owns and operates the show, says attendance hit 92,000. This was not near the record of 110,000, but all-things-considered, it was nothing to sneeze at.

Exhibitors that I spoke with at the show were generally pleased with the traffic of builders at their booths. Many said that the energy was not as frenetic as shows held immediately preceding this one, but there was a calm professionalism among attendees, many said. I was struck by the number of times I heard this remark — ‘the numbers were down a bit, but the quality was better.’

This makes a lot of sense to me. During the go-go days of ‘03 to ‘06, the market seemed frothy with a lot of inexperienced players clamoring to get a piece of the action. Many of those players did not have the level of business to weather the current housing storm. One can surmise that those players did not have the budget to attend IBS ‘08 or that they have simply gone away.

When you talk to remodelers and builders who’ve been around awhile, they always say that one of the benefits of a market downturn is that it helps weed-out the poor operators and strengthens the survivors. It is akin to a fire in an old-growth forest. The fire sweeps through and kills the underbrush, leaving more light and water for the established trees.

Why IBS Was Better Than Expected

IBS ‘08 was better than expected precisely because the residential construction industry is primarily comprised of small, locally owned firms, many of which have been around for generations. This is certainly true on the remodeling side of the business where full-service remodeling firms seldom get larger than $15 million in revenue per year. This despite the fact that professional remodeling activity associated with owner-occupied housing hit $187 billion last year. It is an extremely fragmented market.

On the new construction side, things are a little more consolodated, but there are still thousands of local players that comprise more than half of all home completions each each year. The top 400 builders produced roughly half of all new homes during this decade. But those operations have been particularly hard hit by the downturn in the market. These top 400 production home builders are where many of the building product manufacturers focused their sales and marketing energies in recent years, so when the downturn hit, the top 400 were particulary exposed. Many top building materials suppliers took a big hit as well and several chose not to exhibit at IBS for the first time in many years.

An argument can be made that downturns in housing, like the one we are experiencing now, help bring the industry back to its roots, the small-volume, diversified builder and remodeler. Collectively these firms represent the backbone of the industry and this was extremely apparent in Orlando — 92,000 attended despite the gloom and doom of media reports.

The lesson is this: the industry is far healthier and more resiliant than anyone could have expected.

This entry was posted on Monday, February 25th, 2008 at 1:23 pm and is filed under Remodeling Market Memo. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.