By Pierre Villere
If you flip to my column this month in Rock Products, the sister publication to this magazine, you will read the same opening paragraph, more or less, so I thought I would repeat a brief background on how I wound up on the pages of these fine publications from SEMCO Publishing.
Over the course of the last several months, I have been in discussions with the great editors at a couple of the SEMCO Publishing titles, including this magazine. After a decade and a half of writing about the construction materials industry, I have expanded my editorial pursuits to include this excellent publication, as well as its sister title, Rock Products. Don Marsh has served as the editor of Concrete Products for more than two decades, and I have had the good fortune of getting to know him well over that time. So, you can imagine how excited I was when I was invited to be part of a publishing philosophy that places great value on traditional print, despite the ever-growing march of digital into all corners of our lives. With this, my inaugural column, I am happy to introduce myself to all of you, and to share my view of the business of our industry in both this magazine and in the accompanying digital e-newsletters each month.
Our firm has a national practice in the construction materials industry, and we closely monitor the headwinds and tailwinds that drive our cyclical industry. And as we all know, the news about the housing market in 2018 was dominated by the slowdown in new housing starts, attacked on multiple sides by land and lot shortages combined with rising interest rates, increases in materials costs across the board, and ever-increasing prices that affect affordability. Add to these pressures the constant hangover of severe labor shortages throughout all the construction trades, and many were predicting gloom and doom for the housing market. There were even some who predicted we had seen the top, and that new starts would be headed toward a cyclical downturn.
But I was a lone wolf, and didn’t share that opinion. Instead, I looked at the Fed policy pronouncements and what was playing out in the background of the economy, and months ago I predicted that the Fed’s march in increasing interest rates would come to a halt. Many weeks later, they formally confirmed my prediction, and announced rate hikes would take a pause for the rest of 2019.
So here is what happened next: every real estate agent in the country who was working with buyers that were on the fence advised them there was a window; while 30-year fixed mortgages had been predicted to rise to as high as 5.5 percent at their peak this year, the pivot in Fed policy has suddenly pushed them back down to a low of almost 4 percent in recent weeks, depending on the term. As I suspected, buyers on the fence came flying off and jumped back into the market, anxious to take advantage of a low-rate window that will only last a short time before wage and inflation pressures force the Fed to act, and resume their upwards march on normalizing interest rates to their historical levels.
That policy shift has given rise to a new report from the National Association of Realtors that revises their predictions for 2019 from less than a year ago. Now, the association is expecting the housing market to be busier than their economists originally predicted as recently as late last year. That means more home sales, more new housing starts, and higher prices are on the way. Remember, while a single percentage point difference may not seem that significant, it can add more than $100 to the monthly loan payment on a median-priced home of $300,000, assuming buyers put 20 percent down. That can translate into tens of thousands of dollars over a 30-year loan.
The downside for buyers, and a corresponding upside for homebuilders, is that prices are expected to rise, going up 2.9 percent in 2019. That’s because the swelling ranks of buyers motivated by those lower mortgage rates will increase demand, and therefore prices. Nevertheless, the prediction for the entire housing market has improved since late last year, which will have a positive effect on the concrete market.
In closing, I want to thank our Editor Don Marsh, for our two-decade long friendship, and for inviting me to join this great publication which I have admired for years. I hope you, our readers, will find my monthly contributions to be interesting and informative.
Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry that specializes in mergers & acquisitions. He has a career spanning almost five decades, and volunteers his time to educating the industry as a regular columnist in publications and through presentations at numerous industry events. Contact Pierre via email at [email protected]. Follow him on Twitter – @allenvillere.