TRG | The Bottom Line – 9/2

Federal Chairman Powell’s commentary from last week’s Jackson Hole economic summit was distinctly hawkish, making clear that more rate hikes are on the way to cool inflation. As such, the inflation number in September will be hugely important. In the wake of this commentary, TRG has been reaching out to residential construction industry contacts across the U.S. to gain clarity on sequential changes in demand trends, pricing and outlook. A national building product supplier to the residential end market noted that conversations and inbound demand was robust through May, but by mid-June demand had moderated swiftly. In other words, producers “couldn’t keep up,” and that is not the case at this juncture. And Arizona-based customer home builder this past week noted a change in sentiment among its high-end buyer becoming more cost conscious, a trend change from just two months ago. The other big change has been price deflation in lumber (not as surprising given lumber prices have been rolling this past spring) and insulation (a bit more surprising given the industry earlier this year was on allocation). Both contacts agree that a backlog of unfinished homes will drive sales through the end of 2022. That said, it’s unclear what 2023 has to hold. A stat from UBS Investor Sentiment survey published recently pretty much sums it all up: Investors are feeling the impact of inflation and 41% of those surveyed are holding off on big purchases (including a home purchase).