Solid Sentiment

Low Inventory & Flexibility Buoy The Builder Market

While there was an expectation that the builder business would slow down due to high interest rates, ongoing supply chain issues and other factors, the reality is the builder market is on a strong path for growth in 2024 due to a variety of factors, from historically low inventory to builders’ nimble negotiations.

“Despite ongoing supply-side challenges, the positive impact of low resale inventory and strong demand for new construction, along with anticipated rate cuts, will drive single-family production over 1 million units this year,” said Fan- Yu Kuo, senior economist at the National Association of Home Builders (NAHB).


Shaw's natural bevel product is an on-trend wider, longer plank.

She added that data points to a continued strong market. “Entering 2024, both economic growth and the labor market continue to show strength despite a rise in consumer debt. These solid macroeconomic data suggest the possibility of a soft landing.”

Kermit Baker, chief economist of The American Institute of Architects, noted: “The owner market is being tugged by two competing forces. Housing affordability is a major concern with stubbornly high fixed-rate mortgages hovering near 7 percent coupled with record house prices. However, demand is surprisingly strong since there is a national housing shortage that is estimated to be as high as five million homes. Once the Federal Reserve begins lowering internet rates, homebuilding activity is expected to accelerate.”

While the home builder industry’s total size dropped in 2023, to $123.2 billion, the market still grew 1 percent a year every year since 2018, according to research by IBISWorld.

Even in the face of relatively high interest rates, one key factor driving the builder market is the historic shortage of homes in the U.S. Business and financial analyst Moody’s estimates that there is a housing deficit of about 2 million units.


AHF Products' Bruce line of engineered hardwood is ideal for the builder market.

Rosy Picture

Flooring suppliers have in fact seen the builder market outperform expectations. “Single-family home sales have met or exceeded Q1 forecasts in most areas of the U.S.,” said Scott Baker, vice president of single family for Shaw Industries. “Higher interest rates and higher cost of goods still are headwinds in this channel, however there is a large demand for single family homes; especially affordable/first-time homes.”

In fact, suppliers expect the year to be very strong and continue to grow, even in the face of a weak ending to 2023. “The builder business started slowing down last year in Q3, but it looks like it picked up steam again,” said Brian Carson, chief executive officer of AHF Products.

The factors that are impacting the market will continue and should continue to have a positive impact, noted Matt Mitchell, vice president of builder for Mohawk Industries. “One thing we look at is that as a country, we are still undersupplied in housing. There’s still a demand, but the issue is how do you balance that demand with affordability.”

Another issue that has impacted the entire real estate sector is interest rates. After historically low mortgage rates during the pandemic, rates for 30 and 15-year mortgages have doubled in many cases which has hampered the resale real estate market. However, home builders can offer buyers significantly more attractive mortgages to spur sales.

“Buyers are buying down interest rates from builders,” Mitchell said. “Existing sales can’t match that. And with inflation still being so high, builders are being creative and taking advantage to create more market share.”

Rate buydowns can have a substantial impact noted Tony Wright, executive vice president of American Home Surfaces Group/Commercial USA. “Higher interest rates continue to have an outsized influence on the new home segment. First-time buyers are just short of being able to afford a new home, and existing homeowners are reluctant to give up their 3 percent mortgage on their existing home. However, many builders are discounting mortgages to move inventory and there is still demand for single family homes.”

And executives are optimistic that interest rates will fall and will fuel more demand. “Those homeowners with locked-in lower mortgage rates currently aren’t looking to move to another home or looking to build one,” noted Mike Sanderson, vice president of marketing for Engineered Floors (EF). “But as we wait for the Federal Reserve to hopefully lower interest rates later this year, we are optimistic that pent-up demand and a low amount of existing homes will push the builder market upwards.”


Mohawk's RevWood is a popular choice for builders.

Bigger Is Not Better

Housing affordability also continues to impact the builder market, which is responding with smaller home trends. While median size of single-family homes decreased between 2016 and 2020, the pandemic led to some people looking for larger spaces. That has reverted again, noted Kuo of the NAHB. “Home sizes are once again trending lower due to rising interest rates and continued constraints on housing affordability.”

Even with smaller homes affordability is still an issue, noted Baker of Shaw. “There is still a lack of affordable housing in our country, with a great need for attainable new construction homes or single- family built-to-rent communities.”

In addition, suppliers and builders need to be flexible and innovative, said Mike Dugan, vice president of MSI. With mortgage rates rising and existing home sales continue to be slow, top 25 builders are playing a vital role in providing homes to buyers. As a supplier, we have an obligation to our builder partners to make the process simple, predictable, on trend and on time. This requires a high degree of adaptability and the willingness to innovate.”


Engineered Floors' Cumberland Plus LVT brings warm wood looks to the builder market.

Products Perform

Flooring suppliers are focusing on the builder market with a variety of soft and hard surface options, even as carpet becomes less of a focal point. “Carpet continues to be a smaller part of the flooring mix,” Mitchell said. “Hard surface is the focal point.” He noted that floating floors are becoming more popular as well as faux wood looks at key prices. “Builders are fixated on taking costs out of products and the floating products have come a long way.”

Chris King, senior vice president of sales and marketing for AHF Products, said SPC products are one of the top performers. “There is a big movement to SPC. There has been some movement back to hardwood and we are seeing good growth in our engineered business.” He noted that with the company’s Crossville acquisition, the company works with builders to provide complementing looks and designs.
Wright of AHSG said that hardwood and wood looks remain the top trend.

“Technology enhancements are improving the visuals of wood-look products in luxury vinyl, laminate and tile categories, making these options even more attractive to new homeowners. These products are having the biggest impact in new home flooring.”

Sanderson noted that digital printing, such as the kind used by EF in its Pure- Grain Digital LVT line, helps fill the demand for wood looks in new construction.
Colors and designs are changing, too, noted Baker. “Flooring trends in the new construction market are shifting from grey colors to warmer tones. Light-to mid-tone colors are popular for hard surface flooring, with white oak being the most popular visual.” He said longer, wider planks also are trending. In addition, he noted that patterned carpet is becoming more popular. “There is also a desire for less cookie-cutter and more personalization.”

Cautious Optimism

To be sure, there are numerous factors that can continue to impact the builder segment. “Construction costs continue to climb, supply chain issues linger and high interest rates are keeping some on the sidelines,” Sanderson said.
Wright noted that while the market is strong, the trend to smaller homes could have a adverse effect on the flooring industry. “Many builders are reducing the size of homes they are building, and this is obviously having a negative impact on the flooring purchase ticket for the homes.”

By the Numbers

As of Feb 2024, year-to-date permits are as follows:
Single-family: 155,236
Multifamily: 78,259
Market share: single-family 66 percent; multifamily 34 percent
Source: NAHB