Slow Recovery Ahead for Building Materials Distributors

Building materials and construction wholesale distributors can look forward to a somewhat brighter 2010. Construction activity is showing signs of life but will remain depressed during the next 4 to 5 years as the excesses of the housing bubble get slowly worked out. I expect a gradually accelerating recovery and a return to the normal cyclical market dynamics that characterized the 1980s and 1990s. A detailed forecast for distribution appears below.

While growth will turn positive in early 2010, keep in mind that we are coming off a dramatically lower base level. Annualized revenues of building materials and construction wholesale distributors are now running at $98.4 billion compared to $145 billion in 2006, suggesting that substantial overcapacity remains in this sector.

Be sure to register for my 2010 Economic Outlook for Wholesale Distribution webinar to hear my detailed forecasts for all major sectors of the wholesale distribution industry. Your whole management team can attend for one low price.

Here’s the year-over-year actual and forecast growth in revenues of Building Materials and Construction Wholesale Distributors. Click the chart to enlarge it.

This 2009 Wholesale Distribution Economic Report provides more background on the overall sector and its sub-sectors (lumber, roofing, etc.)

The market for single-family home appears to have hit bottom in January and is stabilizing, albeit at dramatically lower levels compared to just a few years ago. New housing starts should increase next year to about 750,000 units—far below 2005’s peak of 2.1 units. The easy credit terms that helped to inflate the bubble are unlikely to return for at least 10 years (if ever).

Foreclosures and oversupply will continue to exert downward pressure on pricing. Home price gains since 2002 have been completely erased in the four most overbuilt states—California, Florida, Nevada, and Arizona. On the plus side, housing affordability is back to pre-bubble levels. I’ll show you the detailed metrics on my November 19 webcast.

The remodeling market will also recover but remain below the bubble year levels. Cash-out refinancings, which support the remodeling market, totaled $1.1 trillion from 2003 to 2007. In contrast, less than $45 billion of equity was cashed out in the first half of 2009.

P.S. If you’ll be attending 2009 NAWLA Trader’s Market next week, be sure to stop by my session on Thursday (November 5) titled “Winning Strategies for an Evolving Channel.” I’ll be doing a deep dive on the future of construction and what it means for this channel.