How millennials are shifting demand in the home-buying market
Although housing starts appear to be picking up in recent months, it is unclear whether this trend can be sustained as supply chain disruptions, high materials costs, and construction labor shortages continue to plague the sector. Some camps are even fearful of the possibility of an impending housing crisis which could be triggered by a wave of evictions attributed to pandemic-related disruptions.
In spite of this, the U.S. housing market remains hot, with the growing demand for homes shifting toward younger cohorts, particularly millennials.
“I think we've seen a shift in demand to millennials,” Dave Flitman, Builders FirstSource (BLDR) president and CEO, told Yahoo Finance Live. “We've got something like 85 [million] to 90 million millennials that are now in the home-buying market that weren't [in the market] 10, 12 years ago. And that's creating a lot of underlying demand.”
Flitman joined Yahoo Finance Live to discuss where he foresees the markets for lumber and other commodities in the homebuilding sector heading amid a turbulent period for the area. Builders FirstSource is the largest supplier of building products for residential construction in the country, and has about 550 locations in 40 states across the U.S. The company entered a merger agreement with BMC Stock Holdings in mid-2020, with the deal closing this past January.
Flitman emphasized that the lumber crisis was developing even before the onset of the pandemic. According to him, nearly 1 million single-family homes were being constructed every month in the first quarter of 2020 for the first time since before the 2009 global financial crisis.
“And so the underlying demand in homebuilding was very strong. Then the pandemic hit,” Flitman said. “And then coming out of that, we had two effects. One was single-family home construction actually accelerated because people appreciated and realized — given the pandemic and work from home — they could live wherever they wanted, so they made the choice to move. Those who didn't decided it might be time to remodel their existing home.”
This ultimately caused a “double whammy” effect on the demand for lumber. Despite the price of lumber pulling back from historic highs for the year, some experts say that the homebuilding market is not out of the woods yet. Flitman said that the current cost of lumber is still about twice the historical rate, underscoring just how strong the underlying demand really is. Shortages and subsequent outsized prices on commodities like lumber and copper continue to have a vice-grip effect on homebuilders.
The future of the housing market
According to Flitman, the number of new home construction permits being issued is up across the country. Discounting the pandemic, new home permits are up 41% from the fourth quarter of 2019, he said. In other words, the pent-up demand for housing will not be going anywhere anytime soon.
Flitman also noted another phenomenon in the housing sector that has been observed over the past few years — the changing average size of new homes.
“We have seen the average size of new homes shrink, really, over the last four or five years to about 2,300 square feet now,” Flitman said. “I think we may see that trend reverse. In fact, in the last couple of months, we have seen it level off and actually begin to increase again.”
As for the near term outlook on the materials supply chain, Flitman said that builders may have slowed their new single-family starts over the last couple of months to provide the overall supply chain with a chance to catch up.
“Because just like lumber, we've seen that same demand increase and availability challenge in supply in just about every other area of home construction, whether it's cabinets —whether it's windows, doors, you name it,” Flitman said. “It's difficult to get. I've even heard many builders speak about their inability to get appliances and that holding up closings on new homes.”
Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter: @thomashumTV
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