Strategic Exchange: Will the Fed’s rate cut spur the housing market? – October 2024

By Kemp Harr

It’s been 14 months since the Federal Reserve stopped raising interest rates to curb the 8% inflation rate the U.S. economy was experiencing after the federal government pumped $7 trillion of stimulus money into the economy to counter the Covid-related downturn.

Now, finally, in mid-September, we get the long-anticipated relief, and it’s a half-point reduction. About time, right? Existing home sales are at 4.09 million units, down 33% from 6.12 million in 2021. Seasoned veterans in the flooring market know that housing turns are the single biggest driver of activity in the retail replacement flooring market, so the doldrums we’ve been experiencing in this sector should end soon, right?

Not so fast. Consumer sentiment-how good the U.S. consumer feels about spending-is another factor indicating how freely buyers are willing to invest on a deferrable purchase like floorcovering. Sentiment in September was 40% above its June 2022 low, but consumers remain guarded as the looming election generates uncertainty. This, coupled with wars in Ukraine and the Middle East, held sentiment down to 69 in September. Prior to Covid, the reading was much healthier at around 95. Social media and the 24-hour news stations are working hard to make people feel like we’re on the brink of doom so that we will continue to tune in and keep their ad ratings high.

The good news is the election will be over soon, and economists are predicting an uptick in the housing market that should positively impact the flooring market by Q2 2025.

The outlook for the commercial flooring market, which normally lags residential, is a bit more uncertain. The backlog with commercial contractors is still healthy, but the Architecture Billings Index took another dip, dropping to 45.7 in August. This leading indicator has been below 50 for over a year, so there is a high likelihood that demand in this sector will taper off. For more insight on which sectors are performing best, turn to page 39 for our Top 250 Design Survey.

FEI GROUP ANNUAL MEETING IN D.C.
After missing a few years, I attended this year’s FEI Group annual meeting in Washington, D.C. during the second week of September. You may recall that this group of contractors was started by Dave Gheesling as Floor Expo but has expanded beyond flooring into cabinets, roofing and even safety cones, and it’s now owned by Nationwide Marketing Group. While the group overall has over 600 members, there are still 115 legacy members focused on the builder and multifamily flooring business. This year’s meeting was the group’s 26th.

The kickoff keynote speaker was a former Green Beret named Scott Mann, who spoke about human nature and recognizing the source for most of the discontent in today’s world. Scott’s metaphor of an iceberg illustrates how 80% of the structure under the water is our ancient human nature, which has to adapt to the modern world, only 250 years old, that’s above the water. The best way to adapt is to understand that, as centuries-old hunter gatherers, our human nature is to seek meaning, logic and social connections and to use storytelling as a method of communication.

It was interesting to watch the various contractor groups interact during this two-day meeting, and I quickly learned that the roofing contractors are the most vocal and animated. Most everybody knows that FEI Group throws the best parties-the event to see and be seen-during the Surfaces Expo each January in Las Vegas at the penthouse Skyfall Lounge.

BUILDER SENTIMENT ON FLOATING SPC
At the FEI Group meeting, a breakout session was held where the builder-focused Home Solutions division could share ideas and common practices. The biggest takeaway from the conversation was the tract builder’s growing disdain for builder-grade floating (click) SPC. Apparently, they have all removed the spec from their packages and are either moving toward thicker dryback (gluedown) or back to laminate and engineered hardwood.

This decision is significant because, as Max Holland told me in our podcast, this group installs about 25% of all floors that go into new homes. There was hope in the room that, as market conditions improve in 2025, builders will shift away from their baseline packages, and contractors will start to see more upgrades where margins are better, and, as a result, consumers will end up with a better-performing floor.

If you have any comments about this month’s column, you can email me at kemp@floorfocus.com.

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