As home-improvement sector positives heat up, investors begin to take notice.

By Robert Isler

Josh Rosenbaum, who oversees over 40 investment bankers as managing director at RBC, had 40 minutes to explain to a virtual audience at the Home Improvement Research Institute’s Conference why the stock market has been performing so well (despite some dips) during a very shaky economy. Further, he shared why he believes the home-improvement sector is suddenly getting so much love and attention. He made every minute count, delivering a detailed tutorial replete with a ton of supportive data.

The session took place as part of a recent three-day conference that included 11 presentations and panel discussions spanning more than 10 hours. Rosenbaum began with a primer on the stock market, then discussed its V-shaped recovery during the pandemic. He said this was the fourth major correction since 1980, noting how very different it was from others during which peak-to-trough and back were measured in years, sometimes many years. For the current correction, the entire process, from initial crash to full recovery, took place over a period of just a few months — something Rosenbaum labeled as “incredibly unusual.”

Unfortunately, the job market has not followed suit. While employment plunged in tandem with the stock market, it is still far from recovering. March unemployment stood at 4.4% just prior to the pandemic. Despite bouncing back somewhat from its worst point — 14.7% in April — at 8.4% it’s still nearly double pre-pandemic levels.

The picture for the housing/home improvement industry, however, is much more in line with the stock market’s performance. Rosenbaum displayed a slide of the Houzz Renovation index. It revealed a classic V-shaped recovery, dropping from 71 to 26 and rebounding to 71 in a short period, while the NAHB Future Market Index performed even better, moving from a pre-pandemic 60 to 39, then on to 70, above the earlier high.

Rosenbaum then turned to the housing sector. He noted that the three groups topping the list of Wall Street “outperformers” were technology, consumer discretionary and housing materials. In fact, gains for the home-improvement stock index were five times higher than the S&P 500 (15% vs. 3%). He spoke of increased merger-and-acquisition activity in the home-improvement sector, which benefits both acquirers and those being acquired.

He rattled off specific trends that he believed were creating interest in the sector — much of it confirming the observations of K&B industry experts. Some of the drivers had already begun prior to COVID-19. These include:

  • An aging housing stock that requires steady new construction to replace;
  • Low inventory of  homes for sale — in fact, the monthly supply of homes available for purchase recently hit its lowest point since 2012;
  • The aging-in-place phenomenon.

Rosenbaum provided support for the latter with a compelling that showing that 56 million people currently are aged 65+, representing 17% of the population. That number will balloon to more than 80 million, or 22% of the population, in the next 20 years. Given the strong desire for seniors to remain in their own homes as long as possible and avoid assisted living facilities — exacerbated by the health crisis —  the potential market for home improvements needed to make those adjustments is enormous.

Other trends, noted Rosenbaum, were part of a shift brought on by the pandemic, or were likely to accelerate following the pandemic. These include the exodus from crowded urban cities in favor of exurban, suburban and rural living; a greater percentage of the population permanently working from home, at least part-time; increased outdoor entertainment spending on the home, like backyard kitchens, and an accelerated replacement cycle as people are making greater use of their homes.

An overall industry positive that Rosenbaum and many others have conjectured is the likely increased availability of contract labor due to reduced opportunities in other fields. If laid-off workers can’t find jobs in their previous fields, they may be encouraged to train for careers in the skilled trades, since there is ample opportunity in these areas.

Rosenbaum’s final observation, a big one, is that Millennials, who tend to value experiences over owning things, have until now essentially resisted buying homes  — but  that’s  starting to change. The implication, he said, is a spike in demand “that will number in the millions, if not the tens of millions.”