The State of Single-Family Building: Contractors discuss the single-family builder market - Mar 2018

Interview by Jay Smith

Jay Smith, president of the FEI Group/FloorExpo, asked three of his flooring contractor members who are focused on the single-family builder business to share their thoughts on current issues affecting the builder channel. Steve Chesin, CEO and president of Carpets N More, based in Las Vegas, Nevada; Matt Routzon, COO of Guy’s Floor Service, based in Denver, Colorado; and Greg Kenith, president and CEO of Flooring Design Group, based in Atlanta, Georgia offer their perspectives.

Q: What changes and trends do you see in the single-family homebuilder market as we enter 2018?
Routzon:
One thing we expect to see is a continuation of the current trend of mergers and acquisitions of residential builders. That will continue to narrow the field of options significantly. The smaller builders are in a land crunch as the larger builders are gathering finished lots at a rapid pace. From a product point of view, the average house is smaller and more affordable.
Chesin: I agree with Matt. There seems to be a continued move towards consolidation right now. I look for more homebuilder deals to happen.
Kenith: The big builders are getting bigger for sure. And the bigger these companies get, the tougher they are to work for as a contractor.

Q: What are you seeing in terms of the size and layouts of homes in the markets you serve?
Chesin:
Total square footage per home is staying the same, just going more vertical. Based on land constraints, we’re seeing more three-story houses with roof top decks. We’re also noting bigger kitchens and bigger islands. We moved into the cabinet business a few years ago, so we’re enjoying that trend!
Routzon: I am seeing a shift to smaller, more affordable housing. Many builders are re-entering the attached housing format, both in paired and townhouse configuration, even some condominiums.
Kenith: In Atlanta, thanks to consolidation, the bigger builders are limiting our opportunity to upgrade the homebuyer with better finishes by offering more “everything included” price models. We’re also seeing more active adult communities, which increases the density and maximizes the number of housing units per available acre.

Q: Can you describe the different types of buyers that your builders are seeing today?
Routzon:
The market for second- and third-time buyers is strong. The lack of existing homes available for sale is driving first-time buyers into affordable, newly constructed homes. The last I heard, in the metro area there were only 4,000 resales in the multi list book. In the not so distant past, there were as many as 24,000. There is a strong local government push toward affordable housing, mostly in the multifamily arena.
Chesin: Vegas is a little different from a buyer perspective. Many of our homebuyers will invest with plans of either flipping later or holding for retirement. It’s usually not bought as a primary residence. Our buyers are good-paying customers with plenty of disposable funds.
Kenith: In Atlanta, we’re starting to see more buyers from overseas that are moving here for jobs. There is also solid activity from Millennials, and they prefer a lower investment with a smaller footprint.

Q: What flooring are you putting in homes today, and how does it compare to five years ago?
Routzon:
Engineered wood, rigid core LVT, LVT, tile and laminate have taken over. Five or six years ago, site-finished hardwood comprised 75% of our hardwood flooring business; today, it’s more like 25%. It is not unusual for the entire main floor of a home to be some form of wood or wood-look flooring.
Kenith: Yes, more hard surface and less carpet. We’re even seeing sheet vinyl pick up some due to the lower cost of materials. Builders are trying to hold down costs anywhere they think they can get by with it.
Chesin: For us in Vegas, most houses are 70% to 75% ceramic tile, though five years ago, it was more carpet. Typically, bedrooms are the only part of the house where carpet is installed today.

Q: It’s well known that carpet has been losing share in new single-family housing. Are you seeing any reversal in this trend?
Chesin:
Not really. Common areas are mostly hard surface, while bedrooms remain carpet, and I don’t see that changing.
Routzon: Same for us. The story is hard surface throughout most of the living space with soft in the bedrooms.

Q: What other product trends are you seeing?
Routzon:
Because of the size and cost sensitivity of new homes, I expect we will see the use of sheet vinyl and LVT grow. However, this can be problematic for us both from a profitability and qualified labor point of view. Vinyl labor is in a real shortage in our area.
Chesin: We’re seeing more demand for ceramic tile. LVT is just starting to enter the single-family market, and I believe it will continue to grow.
Kenith: LVP is starting to show up more but mostly in entry-level homes.

Q: And how about laminate?
Routzon:
Laminate products are just starting to find their way into new housing. I think its usage will grow as well.
Chesin: In Las Vegas, I believe LVT is taking share from laminate.

Q: How is quality labor availability in the early days of 2018?
Routzon:
Labor is something we keep our eye on every day. Our growth is somewhat dependent on available labor and managing labor to its highest and best use. The competition for labor is intense and driving costs up.
Kenith: We’ve never caught up with skilled labor since the dip from the last recession. And that’s across all trades. It’s a daily fight, but we’re keeping up.
Chesin: We are focused on labor more and more. As our labor force continues to get older, we are looking ahead to junior high and high school kids. I sit on the board of the Nevada Sub–contractors Association, and we work closely with the other trades in the market, like framers, HVAC and flooring.

We are rebuilding two new shop classes in area high schools and two new tech schools. The association is taking on the cost in order to get graduates started with a trade career path early in life.