Rock Products

JUN 2019

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6 • ROCKproducts • June 2019 www.rockproducts.com The Strategist Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction mate- rials industry that specializes in mergers and acquisitions. He has a career spanning almost five decades, and volunteers his time to educate the industry as a regular columnist in publications and through pre- sentations at numerous industry events. Contact Pierre via email at pvillere@ allenvillere.com. Follow him on Twitter @ allenvillere. After years of expectations that the housing market would come back to at least its average historical levels of annual starts, The Wall Street Journal recently conducted research that indicates the U.S. housing market is still waiting for a buying surge from the Millennial generation that entered the workforce during the recession, and some of the most bear- ish among economic analysts say it may never come. As I have written in the past, there is no doubt that the U.S. economy is at one of the strongest points in our history, but I regularly caution the economy is only firing on seven cylin- ders. That is because one of the most puzzling facts about the current economic recovery is how little housing has contrib- uted to it. Given its prominence in the nation's overall GDP, it is the eighth cylinder that still needs to fire. Unlike past expansions, which have tended to start with a flurry of home buying, the housing market remains tepid at best. Last year, there were a combined 5.4 million new and existing homes sold, which was about even with 1998's tally, when there were 50 million fewer people living in the United States The lasting slump is a reminder of just how severe the financial crisis was, and how housing itself was at its epicenter. Still Recovering. I have carried the flag for the recovering housing market, stating that an unmeasurable force yet to be unleashed is the Millennials, who have now reached the age when people tend to buy homes. And they could buy a lot of them; as of last year, there were 67.7 million Millen- nials, according to the Census Bureau. At the same age, the membership of Generation X, the prior demographic cohort, was about 3.7 million people shy of that total. And industry voices, including me, have been preaching for years now that Millennials are going to reinvigorate the housing market as the economy continues to expand in the post-recession recovery. But all of us have been wrong, at least so far, because they haven't. The homeownership rate among households headed by someone under 35 was 35.4% as of the first quarter, according to the Census Bureau, as compared to 40% in 1999. How did we miss the timing on this? Among myriad research being published around the end of the recession, the Harvard Joint Center for Housing Studies published a report on household formations in late 2016, and at the time, the number of Millennial-headed households alone was expected to grow an astounding 39 million over the Millennials Are Still on the Housing Sidelines 10-year span, from 16 million in 2015 to 39 million in 2025. And beyond that date, the cohort is expected to grow even further to 50 million households by 2035. The housing market salivated over these statistics as we emerged from the Great Recession, and homebuilders thought the Millennials would be the much-needed afterburners for the housing market; on top of a regular base of around 1.1 million new homes being built to the base of regular home- buyers at the time of the study, many believed the unleashing of the Millennials would push the housing market back up to the stratospheric levels of 2005-2006. Merely a Delay. So far, it hasn't happened, but I feel strongly it has merely been delayed. The recession that ended in 2009 was unusually severe, and it hit the Millennials particularly hard, just as many of them were entering the workforce. The unemployment rate among workers aged 20 to 24 shot as high as 17% in 2010. It would have been even higher if more young people hadn't opted to continue schooling instead of joining the labor force, or simply stopped looking for work altogether. As a result of the Millennials' delayed entry into the work- force, it is probably taking them longer to develop the financial wherewithal to buy a home. Many also are saddled with higher levels of student debt than previous generations, making mortgage approvals more daunting. Moreover, the tough labor market they faced early in their careers may have delayed other life events that often coin- cide with the decision to own a home. Compared with previous generations, for example, Millennials have been getting married and having children far later in life than previous generations. The housing market is still soft as most in the construction materials industry know. But many of us who monitor it still think the Millennials are coming, and when they do, it will be a great shot in the arm for our industry.

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