New Home Insights Podcast Episode 67 Transcript | John Burns Real Estate Consulting

Episode 67: Is the Broken Housing Supply Chain Starting to Mend?

 

Transcript

Dean Wehrli:

Welcome to New Home Insights, the John Burns Real Estate Consulting podcast. I’m your host Dean Wehrli. Today, we’re going to have kind of a two-for-one, a two patter within the single episode, all about the supply chain, the supply chain disruptions that have been so impactful in the housing market the last couple years, since COVID. First, we’re going to chat with Greg Brooks, he’s from the Executive Council on Construction Supply, and we’re going to establish some kind of supply chain basics with him, then dig into some dealer issues and also do a little bit of forecasting. And the second part, we’re going to have a talk with Chris Beard, who is from John Burns Real Estate Consulting. We’re going to brought it out to some more supply chain trends and specifics kinds of questions with Chris and kind of what comes next as well.

So, first though, let’s start with Greg. Greg has a rich history working for the building product dealers for a very long time. I don’t say how long you can do that. And now he is an analyst and the moderator with the Executive Council on Construction Supply, where he keeps his finger on the pulse of the building product sector every single day. Greg, how’re you doing?

Greg Brooks:

Well, I’m doing well, and thank you very much for having me.

Dean Wehrli:

It’s a pleasure to have you. I’m glad you can make it because like I said, supply chain has just become just a huge issue. We’ve been wanting to tackle it for a long time, so I’m glad you can help us do that.

Greg Brooks:

Well, we’ll certainly try.

Dean Wehrli:

Let’s start with learning a little bit more about you before we get into it. Give us a little bit about your background and what you do now.

Greg Brooks:

Okay. I’ve actually been in this business for 54 years now. Really in my entire life. I got a job working in lumber yard for a summer job after I graduated high school and I wound up working in lumber yards to put myself through school and I happened to have been an English major. So when I got out, I was qualified to work in lumber yards, and did that for about another 20 years working primarily for what the industry calls independent lumber yards, as opposed to chain operators like Builders FirstSource or 84 Lumber, for example, and then spent some time as a trainer with Wickes Lumber in the late 1980s, which was, at the time the Builders FirstSource of the industry then, they were the only nationwide chain connected with a new trade magazine called Pro Sales in 1990 and helped build that into leading trade magazine, left them in 2000 to form this company.

The Executive Council for Construction Supply is the think tank, for lack of a better term, made up of leading independent construction suppliers, LBM dealers from all over the United States and Canada. And what we do is we study the marketplace and we look to identify emerging opportunities and then share strategies to capitalize on them.

Dean Wehrli:

Again, we’ll start with some basics. First of all, let me do a quick warning. I guess a podcast one. You hear these a lot. If you work deeply in the supply chain sector and you face some of these issues that we’re going to talk about here firsthand, the disruptions in the supply chain sector, this episode might have some triggers for you. So be careful. I’m kidding. I just I’ve been listening to too many true crime podcasts. So you hear that a lot. This might upset… We’re going to talk about some of the things that have that are not so awesome about supply chain. So let’s be careful.

So first of all, Greg, we do have kind of a varied listenership here at New Home Insights. So I wanted to start with some really kind of basic fundamentals about the supply chain, what it does, what it means. It is going to be a little bit remedial for those folks in the supply chain sector. But again, you’re going to be triggered. So just skip ahead anyway. So let’s start with just honestly, just explain the basic idea of what is the supply chain.

Greg Brooks:

Well, the supply chain obviously very diverse and quite large, if you ever watched the old Rocky and Bullwinkle cartoon, do you remember Rocky and Bullwinkle way back when, and at the end of Rocky and Bullwinkle, there would be always be the ticker tape parade down the streets of Manhattan and in the car, Rocky was getting cheers and Bullwinkle was getting cheers. Well, Rocky is the home builder. Bullwinkle is the manufacturer. And then remember there was a little guy walking behind with a broom sweeping up all the confetti. That’s the distribution channel between the high profile things such as innovative products or innovative ways to build homes and between those two things, there is somebody who’s got to go out and get all those details done and essentially, that’s the distribution channel. And I would include both dealers and wholesale distributors in there. And for that matter, subcontractors, the people who are actually building the homes.

Dean Wehrli:

Okay. So it is just massive and it’s the kind of the cogs in this wheel that makes it turn.

Greg Brooks:

That is correct. I mean, we hear all the time. And my primary business is, I would have to be journalism more than anything. I’m not an economist, but we hear all the time about big, massive ideas on how we can make construction better or more energy-efficient or greener or whatever it might be. All those things have to get done. There are so many millions of little details that have to get done on the job site to make that actually happen. And so that’s kind of where the supply chain comes in is making those things actually work out, so.

Dean Wehrli:

And I love the topical reference to Rocky and Bullwinkle, by the way. I sadly do remember Rocky and Bullwinkle. I’m going to have to admit. How does the supply chain first impact the economy in general? And then I’ll ask the same question about housing specifically, but economically, supply chain does what to our economy, or means what to our economy.

Greg Brooks:

Well, and, of course, we’ve gotten a good lesson in that over the last couple of years here since COVID, but housing itself is, in normal times, something like 4% of gross domestic product, if you look at inflation, housing costs are depending on whether you’re talking about core inflation or the entire CPI, 35 to 40% of the grand total. So it’s a huge part of the economy. The supply chain as we never thought about until COVID broke it, the supply chain is a million moving parts from all over the world, coming together to get products and labor as far as that goes from point a to point B at the right time. And, of course, we got hit with this big mess after COVID where the gears just ground and everything stopped for a while. That’s starting to come together right now, but in essence, that’s supply chain little guy with the broom behind Rocky and Bullwinkle function is to make this stuff happen.

Dean Wehrli:

And that guy with the room got COVID and couldn’t sweep anymore.

Greg Brooks:

And couldn’t sweep anymore.

Dean Wehrli:

Or Inefficiently.

Greg Brooks:

Yeah. He was out for a while or somebody else was out for a while. We had a discussion at our last meeting, and bro, among our members is a major window manufacturer. And people are talking about how… Windows are kind of the largest biggest problem in the channel right now. That’s where people are having the greatest difficulty. And he says we have no problem building windows. You know, we’ve got all the materials we need to build windows. The problem casement window latches, that we were sourcing from probably China, I don’t remember, but everything was stopped because they could not get latches. And, of course, it meant completely refiguring all the production lines in order to switch to a different product. So it was this one little tiny $3 product that was stopping the entire process. And that’s been happening all over in various industries.

Dean Wehrli:

Historically, was COVID the first time that the supply chain was disrupted so extensively, or has this happened before for other reasons?

Greg Brooks:

Well, it has happened before in a general sense. I mean, we had a great deal more globalization at the beginning of the 20th century that was undermined by World War I and then by World War II and gradually it built up again. And so over the 60 years that it took to get to the stage that it is, then COVID stopped things again. But I don’t know that we’ve ever had a situation quite like this before where it’s been stopped so suddenly.

Dean Wehrli:

And because we are so much more of a global supply chain, a global economy, it does make sense that we have a disruption anywhere be a global disruption.

Greg Brooks:

And there are a lot of people saying we may not be quite the globalized economy that we were in the past. There’s been a whole lot of talk, the recent chips act, for example, to bring semi-conductor chip manufacturing back to the United States. There’s a lot of movement to bring that all back home.

Dean Wehrli:

Yeah, we’ll see. My gut says that’s going to be… As we recede from COVID and the expense of that, and the difficulty in doing that, might supersede the desire to do it.

Greg Brooks:

That is-

Dean Wehrli:

The will to do it.

Greg Brooks:

Never underestimate the ability of people to forget what happened yesterday.

Dean Wehrli:

Very true. We’re going to touch on this with Chris coming up next a little bit, but I wanted to ask you too, this disruption in the supply chain, is it purely COVID? With these like labor shortages, would that be happening absent COVID or commodity shortages transportation issues, this is all stem from COVID or there is this something that has some other impacts or could have happened to some degree anyway?

Greg Brooks:

Those things were all there. They’ve all been there. COVID made them worse and made some of them much, much worse very quickly, but the issues have always been there. And I don’t want to sound like I’m getting political at all, but it does tie back to this incoming inequality issue. The fact that a lot of people are the middle class… It’s an exaggeration to say the middle class is exactly shrinking, but at the same time, the middle class has not been growing as fast as the upper two quintiles. And they haven’t been gaining income. And so it’s been gradually slipping. And as a result, it’s getting very difficult to find employees, now throw in them.

Dean Wehrli:

Oh, okay.

Greg Brooks:

Yeah. Then add in the internet revolution of the 1990s. And we’ve got a whole generation that was raised on the idea that you have to go get that college degree and you want a white collar job. You’re going to be a programmer. I want to work for Google. I want to work for Apple. And if you go back further, I’m old enough to remember the period when it was actually for a young guy, it was cool to be a carpenter. That was a good job, but we’re going back to the 1970s when the median wage for a carpenter was the equivalent of about $38 per hour. And today, it is coming up. Five years ago, it was 23, 24. Now we’re closer at 28, but it used to be that you could become a blue collar worker, be it a carpenter, an electrician, or whatever the trade might be. And you could have a good living and buy your house and raise a family and have one income and so on. And those days are kind of gone. And this is kind of the result of that. Now it’s hard to find people.

Dean Wehrli:

Yeah. It’s funny. We do may need to make it being cool to be a carpenter again. I swear to God this is true. This is probably a couple years ago, but I saw a person with a shirt and it was a carpenter shirt. And it said, it’s a play on words for the got milk. It said, got wood. I can’t remember what else it said, but it was that. Now that could be misinterpreted very easily and very quickly, I admit, but maybe that’s the kind of thing we can make carpentry cool again.

Greg Brooks:

I have forgotten the name of the company, but I know that there was a lumber yard back then producing those T-shirts. I thought it was tremendously fun, but no, you look at any blue collar job like that. And that’s been out of favor. Now, my understanding in reading about the gen Z coming up, this next generation coming up that they are more prone to be interested in blue collar work if they can make good money at it.

Dean Wehrli:

I mean, that’s true for everything. I mean, if they can make almost as much money with tips being a barista, really, are you going to go in a hundred degree weather in Sunbelt states all summer long building homes, that’s tough if it’s not significantly more income.

Greg Brooks:

Well, it does have to be more. And it was probably three or four years ago, NHB did a study. They went out and they surveyed 18 to 25 year olds about what they wanted as a career. And those 18 to 25 year olds, roughly three out of four of them had an idea. The other quarter said we have no clue what we want to do with our lives. But the three out of four, I only 3% of the total said they wanted to be in construction. And everybody thought, oh my God, that’s horrible, that’s terrible. But then they asked, okay, if you’re undecided, what would it take for you to be in construction? And at $75,000 to a hundred thousand dollars, half of the kids who were undecided, construction would’ve been the largest single group of the bunch, rather than one of the smallest if in fact there was good income.

Now, there’s a whole lot of reasons why carpenters don’t make a hundred thousand dollars a year, but aside from that, the raw what would it take to bring people into the industry? That’s it. And I say we would laugh in the distribution channel because nobody even thinks about being in the distribution channel. Back in the 1990s, there was a survey by a magazine called American Demographics. They asked high school seniors to rank their choice of professions. And they came up with 254 choices and carpenter came in number 253, just ahead of cowboy.

Dean Wehrli:

Cowboy was 254?

Greg Brooks:

That’s correct. It’s a worst [inaudible 00:16:10].

Dean Wehrli:

Cowboy was pretty cool. How is that not higher? I mean, a cowboy, unless you know what cowboys do then it’s 254 for sure. But most people don’t know what Cowboys do. It sounds cool. I don’t know, cowboy, would’ve been in my top 10.

Greg Brooks:

That’s great. And lumber yards never made the list at all. The only time you hear of lumber yards, if you remember the movie Caddyshack. If you remember Caddyshack, Danny the caddy had to win the caddy tournament to get the scholarship. And if he didn’t, everybody kept telling him no problem, “You’d go work in a lumber yard.” And so that was the thing they were scaring with throughout the movie.

Dean Wehrli:

Ah, that’s okay. Well, cowboys and astronauts are the bedrock of every kid’s dreams in terms of employments. I feel like that’s disappointing to hear. Let’s talk about impacts a little bit. Are there any specific companies, literally companies to the degree you can talk, if you want to disguise their identity, feel free, but have certain companies been impacted by this more than others, for instance, potentially window companies, for sure?

Greg Brooks:

I’m not going to try and address the manufacturing level of the channel because I think Chris will do a better job than I can with his background of doing that. But when you look at the dealer channel, and if you look at the portion of the channel that is closest to the job site, essentially, there are some companies that are doing better than others. And for that matter, it’s the same with builders. Their number one challenge for years and years now has been finding enough skilled labor. And yet some builders have no problem finding skilled labor. Others, you can’t find it at all. And the difference is that if I work at a company that is professionally managed, where I’m fairly paid, where there are opportunities for advancement, if you get that message through people do want to come and work. And if you’re looking at the distribution channel, particularly at that dealer level, if you work for a manufacturer and you’re a production worker, you are on the production line all day long.

If you’re a carpenter, you’re going to be building houses all day long. If you are at the dealer level of the industry, you can make a career in manufacturing or logistics or retail or construction or manufacturing as a trust manufacturing or engineering. There are five or six different disciplines that all come together at that part of the channel that if young people knew about them, I think they would probably be a lot more interested than they are.

Dean Wehrli:

Yeah. So now it’s funny you say that so the dealer sector is kind of a little bit like people’s conception of agriculture. People think, oh, an agriculture-dependent economy, oh, well, that’s like laborers and okay, California agriculture is, I believe, the single biggest sector in the economy. And there are tons of middle-class and upper-middle-class jobs related to the multi-billion dollar agricultural sector. And I guess it sounds like it’s the same for the dealer sector.

Greg Brooks:

Very much so. And once you reach those people… I know a general manager who is constantly out looking wherever he goes, he is looking for young people who are the lights are on, everybody’s home, they’re engaged, they’re doing a good job. And when he runs into somebody, whether it be McDonald’s or a barista at Starbucks or whatever, he’s got his card and he wants to have a conversation. And he and I have been talking lately about a young woman that he hired away from… I can’t remember whether it was Starbucks or McDonald’s, but it was a frontline job. And he convinced her that she could do better working for his lumber yard. And now, she’s been in it for about a year. She’s an up-and-coming kitchen designer. And she has a real career prospect. Now this is someone with a high school diploma, no college degree. And it’s going to be a good, solid job where she can make a good income. So yes, there are opportunities there. The difficulty is getting that word out and making people understand that.

Dean Wehrli:

So you’re basically saying that the dealer should be trolling their fast food restaurants and poaching from Burger King and-

Greg Brooks:

Yes. You go down to Trader Joe’s and you go just to hand out business card. Forget about the food. That’s facts.

Dean Wehrli:

Trader Joe’s will be sending us a letter. Let’s talk about dealers then. More broadly, I guess, how has the supply chain impacted I guess the whole dealer network, and maybe even specific dealers are parts of that network? Does that make sense?

Greg Brooks:

What has happened, and this is a longer-range trend. The catalyst for that started dealers on the path that they are right now was the rise of warehouse retailers in the late 1980s and early 1990s. Prior to that time, the typical building material dealer was 50% contractor, 50% walk-in, do it yourself-er, and that was how the business worked. That all ended when Home Depot hit the market and Lowe’s became a warehouse retailer. And as everybody got back into construction supply, what happened then was that they also began to vertically integrate.

So first, you had dealers who were moving upstream into manufacturing. I’m going to build roof trusses, I’m going to pre-hang doors. I’m going to assemble windows, various things up the street. And as the products have gotten more sophisticated, the installation methods have also gotten more sophisticated. And you see this as much in windows as anything where you have some very specific specs that have to be followed in order to install them correctly. And so that caused dealers to start to move downstream into providing labor. Now you have a whole group of dealers that is combining the entire thing where I’m building trusses. If I need to build trusses, I’m doing the manufacturing, I’m providing that whole package of materials, and I’m building the house in a lot of cases. I functioning as…

Dean Wehrli:

Wow.

Greg Brooks:

Yeah.

Dean Wehrli:

It kind of collapsed the process in a sense, kind of consolidated it.

Greg Brooks:

That is correct. And it makes you look at the construction process as this series of tasks. And somebody counted them up. It was like 10,000 and 130 different people doing them, but they can be combined pretty much any way you want to combine them, any way that makes sense. And so recombining those tasks, who performs this task is the question that’s kind of how you look at construction in order to be able to innovate. Is there a better way that we can combine this?

Dean Wehrli:

Yeah. So consolidation, is there anything else that dealers are doing to kind of, I guess, to impact things like lead times and costs and stuff like that?

Greg Brooks:

Well, yes, for both. When it comes to lead times, of course, keeping in mind that at the dealer level of the channel, everything depends on who’s upstream. If the lead time that was normally four weeks goes out to 12 weeks because they can’t get case window latches, for example, that’s going to hit everybody and there’s nothing anybody can do about it downstream, nor is there anything that the manufacturer can do about it. And so what the dealer’s role is to communicate and coordinate and make sure that the builder knows exactly what the situation is. Similar when we talk about prices and fluctuations in the market. We saw last year those huge spikes and huge valleys in lumber, for example. There are quite a few dealers out there who publish a regular monthly report. I know one, for example, he took a blueprint and he did his blueprint takeoff. So he came up with a material list and he priced that out. Now, every month, he does the pricing for that same blueprint and passes it on to his builders so they can see how their material costs are rising and falling.

Dealers have had a big impact on labor in the market, because if you are a framing subcontractor, and you spend 30% of your time out looking for jobs and 70% of your time actually building them, partnering with a dealer who has generally a broader network of builders can take away that 30% of the time, and you spend a hundred percent of your time building. So having those kinds of collaborations and affiliations clearly makes the process more efficient. One of the things that this has done is it’s caused everybody to kind of rethink what could we do, what should we do.

Dean Wehrli:

Are regional are local or independent dealers being impacted more than the big national players??

Greg Brooks:

They’re being impacted differently, I would say. The networks are, I want to say, pretty much the same. If you are looking at a national player like US LBM, they have a department in their corporate office that is responsible for much of the purchasing. And they’re coordinating information from out in the field and information that they’re getting from their suppliers and matching those two together. If you are an independent dealer, you do the same thing with a buying group that you belong to. If you belong to LMC, for example, LMC performs that function that the corporate office does for, for US LBM or a two-step wholesale distributor might perform for dealers. There was a wholesaler once that told me, he said, “When we go through these periods where everybody says, whoa, we can make the channel more efficient by everybody buying direct from the manufacturer,” and he says, “You can cut out the middleman, but you can’t cut out those functions.” Someone has to be forecasting the needs and inventorying the material and providing logistical support, all has to happen there.

Now whether technology can automate part of that process, is the big question right now, but the tasks have to be done.

Dean Wehrli:

Let’s shift to construction and how this impacts home construction. One of the earliest podcasts we did, and one of the earliest topics we did here was offsite construction. I think I compared it to virtual reality or every now and again, every few years, VR seems like it’s going to be big and it doesn’t. Offsite, it’s been kind of like that. And I was actually pretty sanguine about offsite construction despite three years ago, I guess maybe. Seems like it’s kind of faded a little bit. Could the supply chain be the thing that finally gives the impetus to making offsite construction more widely adopted?

Greg Brooks:

I think my first reaction would be say that may not be the right question. The question is not whether offsite can grow or not, it’s whether it’s really appropriate in every situation. Offsite, construction, panelization surged again 2016/2017 with Katerra, Entekra, and Blueprint Robotics, and all this new wave. Well, offsite construction was the wave of the future in the early 1950s with companies like National Homes. There was a big surge then. There was a big surge in the 1910s and 1920s. You remember the Sears Kit Home and the Aladdin Kit Home and all those things. Panelization has been around pretty much since stud framing was invented in 1830. Somebody has been thinking you got to put this wall together in a factory, and it would be more efficient. What’s changed with the latest wave is that now we have actually taken some cost out by computerizing and taking the design process, CAD/CAM systems to be able to drive the manufacturing.

And that’s taken some of the risk out of it because the biggest issue with prefab in the past has always been the risk involved. If something was just slightly out of spec, there was no such thing as a small problem. If something was out of spec or the foundation wasn’t quite right, any of those sort of things, they can be corrected easily if you’re stick-framing in most cases. But if the building is prefabricated, you are stuck and it’s a big problem. But now that we’re computerizing, that is taken a lot of that away, but at the same time where we’re at right now is that the production is actually more efficient. For three years, I’ve been discussing this back and forth with Gerry McCaughey the founder of Entekra, who is probably the world’s foremost proponent of offsite.

And I agree 100% that the production part of it is much more efficient. The problem is that the engineering can’t be automated, and the engineering costs money. And if you’re going to prefabricate, every single detail in that plan has to be perfect, whereas if you are stick-framing, builders have learned, and I wouldn’t call this intentional by any means, but every dealer in the world will tell you that the building plans they get, suck. They’re terrible. They are filled with errors and omissions and things that are half-done. And it’s just kind of a half-baked plan, but it works because you know that if you can take it out there, you take it out the field and the framers will fix it in the field, and they do. And so you’re taking so much of the upfront design cost out that it still costs eight to 10% more to panelize the structure than it does to stick-frame.

Dean Wehrli:

So is it fair to say that the offsite is this going to have to be super precise, unlike certain large Swedish furniture companies that sell you a bunk bed 20 something years ago, where the screw didn’t quite was a millimeter too far to the left, and it almost caused a disruption in a marriage. I won’t say who that was. It rhymes with Ikea, but I mean, they’re going to have to be just ultra precise for it to take over.

Greg Brooks:

Well, yes. And actually, Ikea has a prefabricated home company too called BoKlok.

Dean Wehrli:

Oh, my God. I should know that.

Greg Brooks:

They sell quite a bit in the Scandinavia, but yes, it has to be perfectly precise. Eventually, it’s going to get there.

Dean Wehrli:

That was my next question, don’t you think… I mean, it has to be more efficient. It should be faster. Don’t you think it’ll eventually be Japan builds almost all their homes like, and Europe builds a ton of their homes like this. Don’t you think we’ll eventually do it here?

Greg Brooks:

Well, say possibly. The difference is that here in the United States, traditionally, the price of a home has been roughly three to three and a half times median household income. That’s the median price of a home. In Japan, it’s 12. In Europe, it ranges from eight to 15 depending on where you go. And they have built in traditional ways, Europe in particular, the default there is masonry reconstruction. And they don’t have a million framers, a million carpenters out there to put onto the job. And so they build practically everything that is wood framed is going to be prefabricated. And they have much more to play with given the historic price. Our issue here is that we can keep things relatively cheap. We’re elevated right now.

The prices are elevated right now, but we can keep things relatively cheap and still build buildings that will hold up just fine by stick-framing. And so any offsite that you do, if you’re going to pre-fabricate, it has to be even more efficient than it is right now in order to be able to do that.

Now, the other option that is the interesting one right now is that you can take away a lot of that problem with prefab by building a very few designs. You go to an American subdivision and every house is different in some way. If each home has to be engineered, then each one has that extra cost. If you build identical homes, then all of a sudden you do the engineering once and you can do it. You can build efficiently beyond that. So if we go back to Levittown, where every home is essentially identical, we’re okay, but so far builders don’t seem to be confident that the market will accept that.

Dean Wehrli:

And I’m glad because they shouldn’t be because the market would not accept. That would be a blunder of the first order. Let’s wrap up with looking at your crystal ball a little bit. We’re going to have Chris do this here, coming up just in a minute, but I want to get your take on this as well. So first, let’s do two things. One, I’ll ask you about the current situation, then I’ll ask you what you think comes next. So in terms of right now back to supply chain disruptions, has it gotten better say from a year ago right now?

Greg Brooks:

Absolutely, yes. It is much better than it was. It’s going to get better from here. There are still problems in some areas. I mentioned windows. My understanding is that the resins that go into engineered wood to OSB are also still a problem. Sealants and adhesives are a big problem because of one of the compounds that goes into them. But for the most part, we are okay right now. Lumber itself is still probably twice as high as it was back in 2017, 2018. But we have, I think it is nine new mills that are coming online. And as those new mills come online, they’ve been slow to come online because, guess what, the manufacturers can’t get the parts to build the sawmill. And so that’s all moving slowly, but as that comes along, the supply chain will again get in that position where things will smooth out.

Dean Wehrli:

So now we’ll flip that and say a year from now, are things even better? Are we still having significant disruptions?

Greg Brooks:

You know something, I’m on one of the steering committees at the Harvard Joint Center for Housing Studies and the economists there, they have a saying, they say, “Give them a number or give them a date, but never give them a number and a date.” Okay.

Dean Wehrli:

Oh gosh.

Greg Brooks:

And I wouldn’t be qualified to say when it will be, but generally, everything I’m hearing is that by the latter half of 2024, this should be for the most part behind us. We should be pretty much there. Certainly, the slow down in building’s going to help this a lot. Slow down the demand and everything’s going to be all right. And then the questions going to be 2025 plus, do we go back to 1.8 million starts per year, or does it just hold at 1.3, 1.4 million?

Dean Wehrli:

Well, economists are kind of like psychic mediums where they make 20 predictions, the one that’s right, they’ll crow about that, the 19 that are wrong, they forgot all those very quickly. It’s kind of also like venture capital.

Greg Brooks:

That’s their other job because if you can’t predict that, do it often.

Dean Wehrli:

And they do. So let’s end with this. Just your crystal ball in terms… What do you think the next potentially big disruption to the supply chain comes down in a few years now? Anything that just seems that part of it could be an issue for whatever reason down the road.

Greg Brooks:

I don’t know if I would describe it as a disruption so much as the use of technology is finally baking itself in it. It’s no longer a novelty. It doesn’t make any difference. Whether you’re talking about the largest dealers or the smallest dealers. They are all looking at automated human resource management systems. They’re all looking at automation in their trust plants if they have trust plants, or in the door plants. We’ve gotten to a point where, first of all, people are comfortable enough with this, but secondarily, there’s a new generation of senior managers and owners that are coming into place who were raised with all this stuff. And so predicting exactly what’s going to happen is very difficult but what I can say is that it’s happening at all levels. It’s not just the Builders FirstSource or the US LBM or the large companies. It’s large ones and small ones and urban and rural, and pretty much everywhere you go, you’re seeing something of that technology revolution happening.

Dean Wehrli:

Okay, well, let’s keep an eye on that. We will, and we’ll hold you to it. I’m kidding. So Greg, thanks so much for coming on.

Greg Brooks:

Well, thank you very much for having me.

Dean Wehrli:

Hopefully, after this episode, folks, and again, we have Chris coming up here in just one minute. People will have a very thorough grounding in things supply chain.

Dean Wehrli:

We all know that COVID 19 has played havoc with many parts of the supply chain that is so critical to the housing industry. The effects continue to this day. They drive up prices, they cause product shortages, and they slow build times, for example. At John Burns Real Estate Consulting, we have a bunch of really smart people who are keeping an eye on that. They look at the building product side of the housing sector.

One of those very smart persons is Chris Beard, who is a director with the Building Products Research Group at JBREC. He helps us and our clients figure out the ins and outs of building products, which have a huge ripple effect throughout the housing industry. Chris, how’s it going?

Chris Beard:

Good. Good to be here. Thanks for having me.

Dean Wehrli:

Great that you can be here, because this is something I’ve been wanting to do, a topic I’ve been wanting to do for a long time. I mean, honestly, since not that long after COVID. Because we realized pretty quickly, that supply chain issues were impacting the housing market more than ever before.

So let’s start with this. Before we get into the meat, let’s just learn a little bit about you, your background, what you do here at John Burns.

Chris Beard:

Sure thing. So I’ve been with John Burns since last September. And at John Burns, I manage our monthly dealer surveys, so I talk with independent lumber yards and pro dealers from around the country. And I also monitor the public building products companies earnings calls, and hear what they’re saying about the overall market environment.

Previously to John Burns, I worked at Pella Corporation, where I worked in corporate strategy. And I have a pretty extensive history in building products. Most of my career has been in building products. It’s an industry that I love and have passion for. And so I’m glad to be at John Burns and practicing what I love.

Dean Wehrli:

You do, by the way. All of you guys over there at … I say you guys because I’m in the custom consulting part. But we’re amazed, I’ll be honest with you. How amazingly granular you guys get and how spot on your projections typically are. It’s just, it’s a level of knowledge about every single part of the building products that is … honestly, it’s amazing. Impressive.

Chris Beard:

Yeah. We have pretty good connection with the dealers. And we talk to a lot of folks every month and have built up good trust, and it’s a two-way street. We share information with them, they share with us. So we really, really are able to drive to really key insights that’s going to help shape this industry.

Dean Wehrli:

Perfect. Let’s talk about some of those right now. Hence, the name of the podcast. So product shortages have been a scourge of housing for a couple years. The first question really is, let’s talk about timing. Is this something that was happening before COVID 19 or is this really a creature of COVID?

Chris Beard:

So it really is a function of COVID. And really, there’s there’s two prongs to that. The first is housing became super important following COVID. So everybody was stuck at home, working from home, and the importance of housing was really, really important. And so people had the need for new housing, but also to renovate their existing home environments and make it more comfortable to work from home and live from home. And so we really saw increased demand.

That, coupled with shortages in manufacturing … think about COVID lockdowns. Think about when people couldn’t get into manufacturing locations to produce the products. Really, really strong demand, on top of shortages in manufacturing is really what drove the supply chain issues that we’re seeing today.

Dean Wehrli:

And let’s tease out timing a little bit more. Is there any light at the end of the tunnel? Are the disruptions getting better currently, or getting worse? And by the way, let’s just preface that with, Chris and I are recording this in early August 2022.

Chris Beard:

Yeah. It was exacerbated, I would say through April or May of this year. Since that time, we’re starting to see slight improvements. We’re seeing some dealers saying that some products are coming back to normal. We’re hearing manufacturers themselves say that inventory levels are returning back to somewhat normal. But we have to evaluate, is this normal 2021 normal, where lead times were extended and where there really was an overall shortage? Or are we talking 2019, pre-COVID normal?

And that’s something we’re trying to tickle out of. So things are getting back to normal, per se. However, most people will agree that these supply shortages are probably going to continue into next year before we’re going to actually see a return to pre-COVID normal.

Dean Wehrli:

How about, is there any one thing that’s causing some of this disruption more than any other? Or is it just all parts of the system are quasi-broken?

Chris Beard:

It’s interesting, because we hear the term whack-a-mole a lot. We hear that from dealers, we hear that from builders. And it seems that when one product gets better, another one takes its place. That’s been the underlying theme that we’ve heard, really since last summer. So beginning last summer, there was a major shortage in lumber. Lumber was the primary reason cited as delays. And that’s really important because without lumber, you don’t build a house. That’s the first thing that goes into a house, is the lumber. And so then you had price volatility on top of it. And so prices went up, they fell back down again. Then in the fall, they came back up again. Now they’re falling again. And so lumber was the chief reason initially, but then that cascaded throughout.

So if you think about the build process and you think about what goes into a home, we’ve really seen an acceleration of different products coming in at different stages of the home that really are leading to shortages. Something that’s new the past couple months is cement. We’ve been hearing about cement. We’ve heard electrical wiring has been in short supply. Plumbing pipes and fittings, that has been in short supply. So I really can’t say it’s just one piece of it. I would say it’s started really with lumber, but has exacerbated throughout.

Dean Wehrli:

I have noticed that, because we’re keeping … in the consulting part of the business. We’re keeping our eye on this through talking to new home agents and new home builders and the like. And it was amazing how every couple of months it’d be something new. It was like, oh no. We can’t finish this house because we can’t get the garage door. Or it was the fixtures, whatever. It seemed like it was something new every couple of months, there was something new that was in short supply.

Chris Beard:

That’s absolutely right. In fact, I talked with a builder last fall. And they were saying that the electrician that they contract with had bought a year’s supply of electrical wiring, just because he wasn’t confident that he was going to be able to get through 2022 for all the wiring that he needed to complete the homes. So garage doors have certainly been a topic. The press has written about that quite a bit. Cement is now an issue. It’s really, the crux of it started with lumber, but it’s been something different.

I will say, the only constant that we’re seeing is windows and doors. Windows continue to be cited as the most … as the product most cited leading to project delays. And that really has not gotten too much better since last summer.

Dean Wehrli:

Is that due to point of origin, or the supply of the materials needed?

Chris Beard:

It’s really the supply of materials needed. A lot of hands have to touch a window. Windows, obviously they consist mainly of glass, and there’s a glass shortage. So there’s a float glass shortage in the US, there’s capacity constraints there. Even wood windows have aluminum cladding, and aluminum has been in tight supply for most of last year into this year. Vinyl windows, vinyl is still having fallouts from the resin that was interrupted in the Texas storms in February of 2021. That still is an issue. So plastics, in general.

And so just because of the complexity of the product and the number of hands that need to touch it, it continues to be an issue in the industry.

Dean Wehrli:

You said a lot of hands touch a window. And I was going to do a free product placement for Windex, but I decided against it. So no, Windex, you’re going to have to pony up if you want it.

So let’s switch over to shipping, transportation. Has that been a big, big part of the supply chain equation? Is it still an issue, or is that part of it getting any better at all?

Chris Beard:

It’s a mixed bag when we think about shipping. So there was a lot of talk last year, even into this year about trucking. Trucking spot rates were really off the charts, there was limited truck availability. That seems to have gotten better, when we look at spot rates and we look at rejection rates. So when there’s something needed to be shipped, they put it out for bid. And low rejection rates means that the trucking companies are really just taking anything that they can get. And high rejection rates means that they’ve got enough business, they don’t really need to ship something. So trucking has been getting better. However, with the price of fuel and fuel surcharges, the cost for trucking is not necessarily getting any better.

There was also a lot of talk around the ocean freights. So a lot of chatter last year into this year around the ports being backed up at Long Beach and Los Angeles. I think there was 150 some ships off the coast waiting to be unloaded. Ironically enough, the west coast shipping has gotten pretty significantly better. However, now we’re seeing backups on the east coast ports. So Baltimore and Savannah are pretty backed up. So ocean freight’s a mixed bag.

The one problem that has been there from the beginning and continues, is rail car availability. So we’re seeing real challenges getting lumber out of the forests, particularly in Canada, and shipping them via rail. Just, there’s a lack of rail cars available to ship. And so some of these lumber companies are having to put that on flatbed trucks at a significant cost expense, because it takes a lot more trucks to ship lumber than it does a rail car. And so that continues to be an issue. And most companies that we talk to are not really expecting any let down in the rail anytime soon.

Dean Wehrli:

Is this movement sending some products on from rail to trucking, is that why when I drive down Interstate five, there’s a wall of semis? And then there’s always that one dude who wants to go, I’m going to say two miles per hour faster than the six people he takes 25 minutes to go in front of. Is that why I’m experiencing that nightmare?

Chris Beard:

I think that probably is a major reason. Everything’s being transported by truck now.

Dean Wehrli:

Is there anything you can do about that? Because …

Chris Beard:

I don’t believe so. And I feel your pain here in Iowa. Even we see the trucks backed up.

Dean Wehrli:

Oh. But … okay. Stop trying to pass. Let’s make a law that you can’t … you just get in line behind the next big truck ahead of you. Sorry, bro. That’s your speed. Right? Am I wrong?

Chris Beard:

I agree. I am absolutely in favor of that.

Dean Wehrli:

How about, just overall though, has shipping transportation … would you characterize it as a little better than it was, say a year ago or so?

Chris Beard:

Yeah, absolutely. It is significantly better, especially with regard to trucking. There was some talk around that last mile, so getting something from a yard to the job site. With the unavailability of trucking, that was a challenge, but we’re not hearing that anymore. Job site delivery seems to be okay.

Dean Wehrli:

So we’re starting to see some retailers, like Walmart, for instance, have cut prices recently to eat into their excess inventory. Generally though, inventory has been one of the issues of supply chain woes, I guess. For housing related sectors specifically, dealers and retailers are still stocking up as much as they can, or are they starting to get caught up with respect to their inventory levels?

Chris Beard:

So this is a question we’ve been asking our dealers, really since the supply chain issue started last year. And we’re asking them, how do they feel about their inventory levels for a variety of building products? And into last year, even into this year, most things were tight or very tight. Lumber, especially. And so the past couple of months, we’re starting to see inventory levels normalize a little bit more. Most dealers say that they feel good about their lumber inventories. And roofing is still a little bit tight. Insulation is still a little bit tight.

A lot of the roofing and insulation manufacturers around the country still have product on allocation, meaning that they limit how much can actually be bought, just because of manufacturing constraints. Siding, decking, those types of things seem to be better. So lumber inventories are normal. Siding, decking, back to normal. Roofing, a little bit tight. Insulation, a little bit tight. But things are generally getting better.

Dean Wehrli:

So generally speaking, the dealers aren’t, I don’t know, complaining as much as they were, or at least citing the inventory as an issue as much as they were a year or so ago?

Chris Beard:

Not at all. In fact, we also asked this past month on how they’re thinking about inventories for the future. So closing out this year with the supply shortages still fresh in the mind from last year and into the spring. And surprisingly, really lumber was the only one cited as they said they were going to reduce their inventory positions. But most everything else, they said they’re going to keep them normal.

So really, in the face of probably waning demand in housing, they’re still thinking they’re going to keep relatively normal inventory levels. Which is interesting.

Dean Wehrli:

Is that from a long term perspective, they don’t want to be caught with their proverbial pants down when demand starts to increase? Or is that a bet on what the housing market does?

Chris Beard:

I think it’s a little of both. So number one, if you don’t have the product, you’re not going to get the sale, so they want to make sure that they have normal inventories. But then there’s also this sense of, we don’t know what’s coming next. A housing shortage is probably going to … a slowdown is probably going to be in the cards. However, how long is that going to last? How long are mortgage rates going to remain high before it starts … really start to decelerate?

So I think it’s a little bit of wait and see right now, given fresh off the mind of the supply shortages we had last year.

Dean Wehrli:

Okay. So lumber specifically, I know you guys do a ton with lumber. That’s obviously a critical component for the housing sector. What are the lumber folks thinking right now? I think you touched that a second ago. Maybe expand on that a little bit, because that’s such a big issue.

Chris Beard:

Yeah. So over half the dealers that we talked to said that they’re going to be reducing their inventory positions in lumber for the rest of the year. And again, we think it’s because of waning demand. But also keep in mind … we touched on this earlier. The price volatility that we had in lumber. So it spiked way up last year then came down in the fall. And when the prices came down in the fall, there was still that high priced inventory on the books. So dealers bought lumber at a high price and then had to sell it at a lower price than what they potentially bought it for, just because the prices came down.

Then they went back up again in the fall, into the spring. And now they’re coming down again. So I think there’s a little bit of that shock of price. Not have too much high price inventory on the books, but also the confidence that the mills are going to be able to continue to deliver. If they do have to place big orders, that they’re going to be able to get the lumber that they need without having shortages.

Dean Wehrli:

Is that the expectation? Is the supply of lumber expected to be pretty stable going forward?

Chris Beard:

I believe so, yeah. It seems like a lot of the issues that were related to lumber seem to be working their way through the system.

Dean Wehrli:

Okay. And have the effects of COVID on lumber, specifically, or any of these other issues, have those started to wane a little bit? Have those gotten less impactful?

Chris Beard:

They have. We had the Omicron wave in the spring that really put people back on their heels. It was tough to get people into the mills, tough to get people into manufacturing. That seems to have gotten a little bit better. Now we’re going through another wave right now, so TBD what that looks like. But it seems that most manufacturers and lumber mills are saying that they believe that COVID is behind them.

Dean Wehrli:

So I’m going to go on a little tangent right now, Chris. We’ll get back to manufacturers and supply shortages in just a second, but I wanted to talk … I mean, you guys. Beyond lumber, other commodities, it always seems to me are just super difficult to predict. They fluctuate a lot. How do you guys handle that? How do you predict what happens next with respect to any of these sectors or our products?

Chris Beard:

We look at future prices. So especially around commodities, it’s very telling because future prices indicate where the price developments are going to be. But then also demand too, right? So we look at what we think the demand is going to be. We have pretty robust forecasts at John Burns around housing starts. And then R and R as well, in building products. We look at repair and remodel and what the demand outlook is going to be like that, too.

                But we’ve also noticed a lot of manufacturers really starting to build up safety stock last year. So the components that they needed to produce their end products weren’t in stock. So buying up these raw materials, if you will, to ensure that they have enough for production. So that commodity fluctuation was more on the front end, and that led to the price increases that we also saw over the past year or so too.

Dean Wehrli:

Obviously, supply chain issues that we’re talking about here today are a big part of the price fluctuations in all these building products. What role though, if any, does things like market expectations play … beyond supply and demand. Play in price fluctuations. Oil is the classic example, right? When something weird happens in the middle east, everybody expects oil to be more, and less supply. So the price instantaneously goes up, and it goes up at your gas pump instantaneously as well. On the way back down, not so much.

But is there any part of that market expectation that plays a role in pricing and fluctuations for building products?

Chris Beard:

There is. There absolutely is. So coming into this year, I think nobody really anticipated as strong of a slowdown as we’re seeing, especially in new housing starts. So prices remained elevated because demand was still there. What we’re seeing still today is most manufacturers and dealers are saying that demand is still there. They think the underlying fundamentals are still there. So they expect demand to remain relatively robust. Builder backlogs are still strong. They’re, they’re working through their backlogs to drive to completions. We see starts will probably slow down. On the repair and remodel side, backlogs also are pretty strong, will sustain through this year.

But so far, the supply chain issues and the material cost increases have been able to be pushed back on the consumer at the end of the day. And so we haven’t seen wild fluctuations in price elasticity. However, we do think that that’s going to be an issue going forward.

Dean Wehrli:

See what I’m talking about> it’s amazing how much, again, granularity you guys are able to get. And what a variety of products as well. So let’s talk about coffee filters and, I don’t know, the purple prosecco at Costco. What’s going to … I’m kidding. We’re not going to. Although, if you want to talk about the purple prosecco at Costco, we can.

Chris Beard:

I haven’t been to Costco in a couple months, so I’ll have to check that one out next time I’m there.

Dean Wehrli:

It’s just as good as the blue label. I’m just going to say it right now. It’s two bucks less. Come on. You’re not going to notice trust me. Unless you’re a prosecco snob.

So let’s talk about labor though, a little bit. Let’s tease that out a little bit. Labor is still a huge, huge, huge issue. Is there anything that’s being done to alleviate that for the manufacturers or the distributors?

Chris Beard:

What we’re seeing is … so it was really tough to get people into this industry. It was really tough coming out of COVID to get people to want to go back into the factories. I heard anecdotal pieces around working from home. When I was at a previous employer, they’d talk about getting people into the factories was a challenge. Because people that usually worked on the line said, well, my wife can work from home, or my husband can work from home. Why can’t I? And so I think the expectations around actually physically going to a production facility and making that, were challenging.

And so we’ve really seen … when you think about the cost of good sold and the inputs of labor, manufacturers have really had to get their arms around it. And so we’re seeing a continuation of quarterly bonuses, quarterly performance bonuses, attendance bonuses, sign-on bonuses. Which in manufacturing, a few years ago, would’ve been unheard of to have a $3,000 signing bonus to somebody to go to a manufacturing plant. But that’s the case, we’re seeing that now. Even in fast food, you see sign-on bonuses. So the cost of labor has really increased, but manufacturers have also had to realize that that just comes with the territory. If you want to get people to come in and make your product, you have to pay a little bit more to do that now.

Dean Wehrli:

I mean, what is going to solve it? Can we … I mean, sure. The tech industry right now, right? That’s hit a little soft spot. The stocks are down in most of those tech companies, but we’re not going to turn coders into building product manufacturers, I don’t think. We’re not going to turn baristas into building product manufacturers. What can long term, big picture make things better?

Chris Beard:

This is a problem that really has plagued the housing industry for a number of years. I think there was a sense that it’s just going to continue and we’ll be able to get enough people into manufacturing, into home building to sustain where we’ve been. But this is a problem that’s not unique to COVID. It’s been exacerbated by COVID just because of demand, but the problem in and of itself is not new. And so we’re really seeing a lot of organizations, a lot of manufacturers coming together and really working with local high schools, working with other training programs to get people into the facilities and say, here, you can actually make a career out of this manufacturing. Here’s your career path.

So I really think that this has been a good thing because it’s allowed the housing industry in general to really have a frank conversation with itself around the need for labor, and how they’re going to address that going forward.

Dean Wehrli:

And I’ll be honest with you, my guess is that it takes something to do with legal immigration before we solve this on a little more permanent basis. And I don’t know if and when that happens. That issue is so loaded with political peril and political posturing that I don’t know how that gets solved anytime soon. So I think we’re in that for the long haul.

Chris Beard:

It’s interesting, because I had that very same conversation at the end of last week with somebody in the industry. And you’re right, it is absolutely a polarizing political issue. On the one hand, you’ve got the side that says, no, we can’t do this. We shouldn’t do this. We have enough people here that should be doing this type of work. On the other hand, it’s just not happening, right? And so I think that absolutely needs to be addressed in this industry.

Dean Wehrli:

Yeah. I mean, if McDonald’s is giving signing bonuses, maybe we don’t. That’s just, I don’t know, just my top of the head thoughts there. So let’s switch back. Given the strong demand over the past couple of years, what are manufacturers … I mean, is there anything else that manufacturers … and be specific to whatever sector you want to. Are doing things differently or are thinking about differently?

Chris Beard:

We saw a lot of capacity being added in certain sectors. So roofing and insulation have tried to add a little bit of capacity over the past year. Those tend to have longer ramp up times. So you don’t just build a roofing shingle factory from scratch. It takes a little bit of time to do that. We have seen capacity additions in siding. We’ve seen capacity additions in decking. Carpet has had some improvements too, although carpet’s really tied to the price of oil. So they’ve got higher input costs there. So in certain categories, I will say, the ones I just mentioned, things are getting a little bit better.

Others, such as windows, where it’s really difficult to add capacity … there’s been a little bit added here, a little bit added there. But it’s really tough. So the more simplistic the supply chain, the more simplistic the product it’s probably easier to add capacity. And that has been added. But you also have to realize too, that these manufacturers have a potential slow down in the back of their mind. So any capacity additions going forward, they may be a little bit reticent to implement those.

Dean Wehrli:

That makes perfect sense, right? Any kind of a short term increase in capacity that might, again, be needed for fairly immediate reasons. They have to weigh against the possibility that they’ll be left with excess inventory, not too far down the road, if not already. How about China? Is China still … I mean, not that long ago, they shut down again from COVID concerns. I mean, they still, as far as I know, don’t they still remain a pretty big part of the issue?

Chris Beard:

They absolutely do. So I think the latest rounds of COVID lockdowns in China had enough warning on them that manufacturers, specifically plumbing … plumbing is a big importer from China. That there was enough warning ahead of time that these manufacturers were able to secure enough raw material, or even enough finished goods for that matter, to get them through that lull. Nobody really knew how long it would last. It seems to be over now, and things are relatively back to normal.

But there absolutely was a buildup of safety stock here in the US to make sure that they had all the product that they needed. With the port issues that we had last fall in the back of their mind too. So it’s better to have product on hand than to miss that sale.

Dean Wehrli:

So would you say … again, generally characterizing this issue. Would you say that most manufacturers and distributors are pretty, fairly positive about, go forward? About maintaining some level of demand and having enough inventory?

Chris Beard:

Yeah. Everybody that we talk to says, yes, demand probably will slow down. But for now, things look relatively good. We like to say the fundamentals, the housing fundamentals are still relatively strong. So we have an undersupplied housing market, a millennial cohort coming of age and becoming homeowners. Those facts still exist. That’s not really going away. And so I think a lot of people think about, yes, there’s going to be a temporary lull, potentially. Or slow down or deceleration, if you will. But the structural drivers for housing fundamentals are still there.

And so looking into 2023 and beyond, there’s the expectation that demand is still going to be there. And most manufacturers seem to be relatively upbeat about into next year and the year following.

Dean Wehrli:

That’s good. But they do have to be careful, don’t they? Because they don’t want to fall prey to the … COVID level demand is forever future demand. I’m looking at you Peloton and Shopify. So, I mean, is there any danger of that happening in the BPM space?

Chris Beard:

There is. I couldn’t pinpoint any specific company, but I also think that the building products market has been slow and steady for … ever since the housing crisis in 2008. So I think that there’s that slow and steady mentality. There’s going to be growth, mid, single-digits growth, probably sustaining. There’s been a little bit more than that from COVID, but a lot of that was price. So slow and steady volume growth is probably going to be on the books once we get through this temporary deceleration.

Dean Wehrli:

Tell me if this is a weird, naive question, or I don’t understand the space well enough. But is there a potential to shift as total sales in the housing sector slow down a little bit here in the near term … already have, of course. Could part of this business shift to more DIY kind of things? Is that something that happens, or could happen? Or am I just being ridiculous?

Chris Beard:

No, typically that does happen. So adding on the inflation piece to all of this, too, right? It made the headlines, the 40 year high inflation that we’re seeing right now. We’ve actually done quite a bit of analysis around sensitivity of big projects versus small DIY projects. And in the near term, we think that DIY is going to suffer, for a couple reasons. The first is, number one, during COVID, there was a lot of DIY projects done. So a lot of walls were painted, a lot of kitchens remodeled as DIY projects. And so those DIY projects were probably … there was a little bit of pull forward on that.

On big projects however, that needed contractors, those are still in the books. The backlogs still remain relatively robust. And also, the DIY consumer is a little bit more price conscious too. So the high gas prices, energy costs going up, food costs going up, they’re more price conscious. So they may say, we’re going to pull back on that DIY project that we may have been planning, just because we want to make sure that we’ve got our finances in order. However, when overall project costs do increase, we do expect DIY to rebound more quicker.

Dean Wehrli:

I think what’s going to happen is all the DIY energy and effort is going to switch over to crocheting, because apparently that is huge right now. So in fact, I think our next podcast, I’m going to crochet while doing the podcast and put it on TikTok. What do you think?

Chris Beard:

That’s new, I hadn’t heard that one. But you could make an argument it’s related to housing, because you can make things around the house. Make some doilies.

Dean Wehrli:

Oh my God, yes. Don’t get me started. Here in my household, I have seen a tremendous amount of crocheting going on. From, by the way, multi-generational. So let’s expand a little bit on the timing. We have a couple more questions and then we’ll be done.

So on timing, we noted earlier … we talked about that a little bit earlier. Next year or so, things look fairly decent. Will there be a time though, in the not too distant future, we’re just not talking about supply chain disruptions anymore? Or is it something that’s here forever?

Chris Beard:

If I was to look into my crystal ball, I would say probably by 2Q next year. So by the spring of next year, I think most of these problems are going to work their way through the system. There seems to be a lot of manufacturers that think that too. Yes, things are getting better. No, not completely back to normal. But again, what’s normal? Is it COVID normal or is it pre COVID normal? But if I was a betting man, I would say that probably into next year, next spring, we’ll be in good shape.

Dean Wehrli:

Actually, let’s end it there. I like that. We’re going to hold you to that Chris, by the way. Our clients certainly will.

Chris Beard:

Well, good thing I’m not a betting man. No, I think we’ll be okay into next year.

Dean Wehrli:

That’s good to hear, because it really has … it almost seems like it’s become endemic because it’s become such an incredibly critical issue that you can see those things. Again, the lessons learned. We’re always at the risk of projecting the future from the present, which is mostly pretty smart, but sometimes pretty dumb. And knowing, or having a good feeling that things are going to go back to normal is, I think pretty positive.

Thank you so much, Chris. I appreciate you coming on. It’s been great.

Chris Beard:

Thank you. My pleasure. It’s been great talking to you.

Dean Wehrli:

Awesome. Again, I’ve been wanting to this for a long time. I’m so glad you can make the time now. And I think this is still, this is something that people are really thinking a lot about.

Chris Beard:

My pleasure. Great to talk to you.

Dean Wehrli:

Awesome. This is Dean Wehrli for the New Home Insights Podcast. We will see you in a couple of weeks.


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