For those builders and developers who are worried about lower home sale and rental revenues if there is a recession next year: take solace that there will be some cost relief too.
The biggest construction cost relief should come from materials that have any of these five characteristics:
- Used heavily in new construction, such as framing, since new home construction dollars are twice as volatile than remodeling and more sensitive to the economic cycle.
- Discretionary, like kitchen upgrades, as those categories are more easily deferred until better days and have a higher chance of being discounted. Less discretionary products like siding, roofing, and HVAC still need to be replaced.
- Used in Big Remodeling projects, especially if they often require professional installation, such as flooring and cabinets. Categories that have more DIY-exposure, like paint, will be less impacted.
- Multiple steps along the distribution chain, with the potential for inventory piling up due to recent excess ordering, such as decking and windows.
- Significant distribution costs, as truck driver labor and gas prices should continue to ease if the economy slows.
The inverse would be true for our building products clients, who could see revenue declines where the builders and developers see cost declines.
We anticipate our building product clients who have more exposure to remodeling, particularly less-discretionary remodeling categories, to be better positioned to weather an economic downturn.
In summary, a recession would likely result in:
- Cost relief within more discretionary products like flooring and kitchen cabinets.
- Small or even no price relief within products like siding and HVAC.