Why LBM Dealers Are Prospering Amid a Pandemic

It just doesn’t feel right. Here we are, seemingly stuck in a pandemic that has closed shops, filled hospitals, and killed roughly 150,000 Americans, and yet building material dealers are reporting some of their most robust sales ever. How can this be?

Increasing evidence suggests we’re reading this tale of two countries because the national economy is fracturing into two groups: the majority haves, who still have jobs and/or reserve funds and are spending more on home comforts, and the minority have-nots, consisting mainly of people in desperate straits because their employers closed.

It’s the haves who are driving dealers’ sales spike, but while many signs point to them spending now, the optimism felt by a subset of this group is fragile. What is now a 3-to-1 ratio in favor of spending on new homes and DIY projects could well decline to parity—or worse.

A KPMG survey in late April spotted this dichotomy, when its poll of 1,000 Americans produced four general responses:

• 23% of the group were hit hard by the pandemic because they had lost their jobs and were in a weak financial position even before COVID-19 arrived on these shores. These are the have-nots.
• 45% hadn’t cut their levels of spending because they were less affected by job losses. This is likely to be the group that caused the DIY boom, having shifted their expenditures from categories like shopping, going out to eat, and travel.
• 27% were relatively affluent but spending less, in part because they weren’t shelling out money on discretionary items like carry-out meals. They also are likely to be funding home improvements as well as purchases of second homes.
• 5% were spending more than they once did. This cohort on average was younger than the others and generally isn’t feeling the pandemic’s impact as seriously.

Housing market experts’ more recent reports continue their generally optimistic tone, but the level of enthusiasm varies. On July 23, Evercore ISI upgraded its rating of two publicly traded home builders. “This strength is rooted in several long-term secular drivers that emerged only with the onset of the pandemic, including ‘nesting’ and work-from-home trends that are driving increased desire for suburban single-family homes,” Evercore ISI analysts wrote.

Record-low mortgage rates and government programs also help, they added. For instance, imagine a young couple in which each partner has $393 in monthly student loans. If this couple wanted an FHA loan to buy a starter home costing $230,000, they’d need to make a down payment of roughly $8,100. But because the CARES act suspended payments on federal student loans through September, and because they both got $1,200 stimulus checks earlier this year, “this alone could almost fund the entire down payment on a typical starter home by September, Evercore ISI noted.

In contrast, the National Association of Home Builders (NAHB) was a tad more guarded with its optimism. On July 21, the association said its latest Housing Trends Report found basically no change in the second quarter from previous periods in the percentage of Americans considering the purchase of a new home in the next 12 months. It was 11% in the second quarter, one point better than the first quarter and even with 4Q19.

But NAHB took pains to note that the data producing that 11% rate was collected June 16-28, just after a period in which the number of COVID cases nationally was steady and the labor force was showing signs of recovery. NAHB didn’t say it, but the implication was that the percentage might be lower if the survey work was done in late July.

The Economist predicts life worldwide post-pandemic will feel as if we’re in “a 90% economy”—a much better place than we were during lockdown, but also more fragile, less innovative, and more unfair than it was just six months ago. When Charles Dickens wrote in A Tale of Two Cities that “It was the best of times. It was the worst of times,” he may have been describing Paris in the French Revolution, but what he wrote also applies to the USA today.