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December 2015

Building products companies poised for 30 percent growth

New construction will soon surpass the remodeling business, according to surveys and forecasts from John Burns Real Estate Consulting.

During an industry conference earlier this year, participants voted building product stocks as the "best risk-adjusted future return." The $500 billion industries that make up that segment are confident of 30 percent growth in new home and apartment construction, "even if interest rates rise."

Burns, the founder of the consulting firm that bears his name, said residential construction will rise to 1.5 million-plus units "because we can all count the number of young adults delaying household formation, and 1.5 million has long been considered a normal level of demand. Dramatic growth from last year's expenditures of $235 billion is anticipated, according to results of a survey conducted at the same conference.

Spending on remodeling is projected to grow 7.8 percent in 2016, with strong gains continuing thereafter. That segment accounted for $266 billion in 2014. While rising mortgage rates would likely hurt new home construction, remodeling would benefit as move-up buyers stay in their existing home and tap into their home equity line to remodel instead of move.

Led by VP Todd Tomalak, the Burns firm recently completed its first comprehensive forecast of US Repair and Remodeling. The report identified 18 major industry drivers and developed assumptions for each. Tomalak is a six-time winner in the "Most Accurate Forecaster" category by the Chicago Federal Reserve.