Where The Economy is Headed & What That Means for Building Products

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Greg Brooks is the Moderator for the Executive Council on Construction Supply and a member of the Harvard Joint Center for Housing Studies. He’s got connections in the industry and tons of insight into what dealers need to know about today’s housing market and economy.

Greg Brooks didn’t have a traditional path into building materials or economics. “I got a job at a lumberyard after high school, working for the summer. And I wound up putting myself through school, working in lumberyards,” says Greg. “I happened to have been an English major… I've just been watching and studying the industry for a long time.”

Greg’s experience gives him a specific kind of insight into the building materials industry. “I have no particular training that equates to being an economist or anything. But what we try and do is just look at the common sense — what happens day to day on the ground,” he says. “I just try and figure this out from the day-to-day perspective of a dealer.”

If you’re a dealer, manufacturer or building materials professional, you’ve probably talked quite a bit about the economy (or lumber prices or supply or the housing market). “And, of course, people are worried about all the talk of a recession,” says Greg.

We’re all a bit concerned, and we’re also at the mercy of the Fed, which has raised interest rates four times since the beginning of 2022. “It’s the Fed’s task to tame inflation that is running at a pace not seen in four decades,” explains Carlos Waters for CNBC. “To do so, it has been hiking interest rates at a fast pace.”

No matter what the Fed decides, we wanted to know what Greg’s perspective is on the housing market, and what that means for those of us who work in it.

“Actually, for all the angst and all the complaining, things are going at this point just about like they should. The whole purpose of this is to slow the housing market down,” explains Greg.

Greg has been tracking the housing market for a few decades now but also looks to the Harvard Joint Center for Housing Studies (JCHS) for insight. Recently, the JCHS published its annual report, The State of the Nation's Housing. “One of the things that they have been tracking in recent years is this real basic measure of how affordable housing is,” he explains.

The study measures the ratio between home prices and homebuyer income. “If you go back into the 80s and the 90s,” explains Greg, “if you made $50,000 a year, you knew that a home was going to cost about $155K or thereabouts.”

The last few decades (and a recession) saw big changes in housing affordability, and we also saw how COVID impacted that market. “In a two-year span, [that affordability ratio] jumped from 4.1 to a record now 5.3. That's the highest ever in the United States.”

The pandemic had a significant impact on all of us, but especially on how homeowners valued their homes: A home provided privacy and respite, away from the chaos of COVID.

We were also saving money at the beginning of the pandemic. “Everybody who kept their job had no place to spend the money. You weren't going out to restaurants. There was no Starbucks,” he says. “And we built up something like $3.7 trillion in excess savings.”

As a result, the extra money and low mortgage interest rates exploded the housing market. “It was this artificial thing that distorted the market, and it distorted it in a hundred different ways. It isn't just [that] housing was able to inflate because mortgages were so cheap, but the mergers and acquisitions frenzy that is going out there,” says Greg.

But Greg assures us that the frenzy will be short-lived. “It takes some time for it to settle out. When prices are that high and builders' profits are that high, that encourages builders to build as much as they can,” he explains. “That creates more supply which creates more competition — which tends to bring the price down.”

Greg reminded us that there are other variables that impact economic activity. “First of all, if we're talking about the price to income ratio, it doesn't matter if home prices come down all that far — if wages were to go up, that changes the ratio, too,” he says. “So, if that should happen, then everything comes back into balance as far as the price-to-income ratio.”

He points out that the United States is also still a very affordable country to buy a home. “Even at 5.3 times [your] income, the United States is still the single most affordable developed country in which to buy a house. Canada is closer to eight. The UK is eight. France is 12. Japan is 12,” he says. “You can get a home, and it's pretty affordable.”

These trends and other changes in our economy have made it tough to predict how those of us in building materials will weather challenges. We wanted to get Greg’s take on what he’s hearing from lumber dealers and how they’re managing their business during unpredictable times.

And Greg has hope. “Most [dealers] still say order files are still out,” he says, “but whether the pipeline continues, that's the other question. We're in great shape. My builders, they're booked for another year and a half. I would describe their mood as more caution than anything. If they've been around a while, they have been through recessions before.”

But labor is another issue in our industry — which Greg sees as an opportunity for those of us who work in building materials.

The last several years have forced a lot of us to do business differently, and we’ve seen a lot of companies and brands navigate these new demands effectively.

“Look at what we're doing right now on Zoom,” says Greg. “Four years ago, getting people to be on a Zoom call was like pulling teeth.”

All of us were forced to change how we market and sell to customers. And it’s time for us to address labor with that same open mindset, Greg suggests. “It has been a long, long time since anybody has said they wanted to be anywhere near the construction business.”

“When I was coming up in the 1970s, it was cool to be a carpenter. But at the time, the average carpenter was making $35 to $40 per hour in today's wages, adjusted for inflation,” explains Greg.

We talk a lot about labor on the podcast because it’s one of the most pertinent issues right now. And according to Greg, it’s something to be hopeful about. “For the average lumber dealer, it's an opportunity,” he says.

The labor shortage has hit many businesses hard, especially since the pandemic. But those challenges have actually helped some of us grow our businesses. “What it does for dealers and probably for builders too, is it pushes them to figure out ways to be more efficient because you can't find people cheap,” says Greg. “You can get as much done with 50 people averaging $80,000 per year, as you can with 80 people averaging $50,000 per year if you're managing properly.”

“And so that's the next big challenge or at least the thing we're talking about a lot is how do you get the people who can be full-scale entrepreneurs or intrapreneurs?” says Greg.

The answer, of course, is paying them — Greg suggests that we “pay them properly for the contribution they make and reduce your labor costs or make your labor costs flexible.”

If there’s one way to help guarantee a more stable building materials industry and housing market, “Labor is it,” says Greg.

Greg is still hopeful for the industry, especially when it comes to recruiting talent for the future of your business.

“This meme has been going around for ages on how millennials do not want to do physical work,” says Greg. “But I've never really quite believed it. And I definitely don't believe it about Gen Zers. And, frankly, the physical work of being out in the yard or building a house and stuff like that is actually fun when you're 25 years old.”

We had a blast talking with Greg, and we think you’ll love the whole interview, which you can listen to in full here.

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