NS Capital has created a research network that gives us access to one-on-one expertise on a global scale. Better Information = Better Decisions!
Thanks to our research network, the NS Capital Investment Committee is frequently invited to timely, topical, and insightful industry events. These opportunities provide us invaluable perspective to what is going in the “real world”. Last week presented one of those opportunities. On May 18th, Bob Robotti (Founder of Robotti & Company) interviewed Paul Levy (Chairman of Builders FirstSource) and we were allowed to listen in. Builders FirstSource is the nation’s largest supplier of structural building products, value-added components, and services to the professional market for new residential construction and repair and remodeling. Thus, affording Mr. Levy a particularly informed vantagepoint on the housing market. Below are key highlights from the interview.
How does the current environment compare to 2005/6?
The industry is less speculative today. There appears to be more discipline in mortgage issuance. Additionally, during the 2005/6 boom, the industry was building 2.3 million homes per year, which was far greater than today. The industry is very busy but is still below the previous peak.
What have been the historical trends in home building? How does today compare?
Since World War II, the historical yearly average of homes built in the USA has been 1.5 million. Post housing crisis, that number dropped to 300 thousand with no meaningful pick up until 2014/2015. The most recent numbers are estimating 1.6 million for 2021.
Are you concerned by the recent rise in mortgage rates?
I certainly understand that any increase in mortgage rates results in increased costs for the homebuyer, but mortgage rates are still very low. We have had booming housing markets when mortgage rates were between 5% and 6%. Now, rates are in the 3% range. Plus, I believe future building should help keep mortgage rates from going higher.
How does the digital world interface with home building?
There is excitement but I remain cynical. I remember in 2000 people thought that our company would be disintermediated by internet competitors. All turned out to be flops. But there is a digital opportunity. Graphics are superb. Technology essentially allows individuals to construct 3D designs of a home they would like to build. There is no limit to the functionality.
Is the industry still a relationship business?
Yes, particularly at the local level. There is no “one size fits all” at the local level. Each market is different. The key is understanding the specific considerations at each locale.
Is the homebuilding industry still cyclical?
Yes, regardless of what people think today, the housing industry is still cyclical. The industry will inevitably slow down. I believe this industry will always have big swings. One just does not know what the trigger will be for the next softening. It is important to be realistic and prepared.