TRG | The Bottom Line – 2/3

TRG found ourselves back in Vegas for another industry show, attending the International Builders Show, Kitchen & Bath Show and Surfaces Show, events that drew an estimated 85,000 attendees. Meetings with both private and public companies touching numerous building and housing products as well as manufacturers and distributors were wide ranging, focusing on how companies are positioned in 2023. While headlines paint a bleak picture, the mood at the show was more optimistic. In short, things are not as bad as you would think. There are still a lot of homes started, but not finished. That will take a few more months. Resi R&R is still fairly active, according to feedback from multiple sources at this week’s show. Multi-family construction is quite robust, a consistent theme we have received from TRG industry contacts during our Q4 “survey season.” Channel destocking is mostly completed. Inflation is still a factor, but the intensity is moderating. Virtually everyone expects a short-lived slowdown. We maintain our view that 2023 is a “digestion year” for the housing industry. This is a pit stop for new construction, as rates and home prices reach equilibrium, which drives a major decline. Note that a decline over 20% YOY puts 2023 on a reasonable path from 2019 levels.  R&R is likely to pull back modesty (mid to high-single-digit) from 2022, as people stay in their homes with low mortgage rates and improve what they have. Multi-family is likely to be strong through much of the year. Lower activity levels and an improved global supply chain is driving inventory corrections in the channel and allows for producers to have better lead times. We think all of these things could set up for a strong rebuild of overall housing activity in 2024.