March 18th, 2021
The Surge Shall Continue Thanks to ‘Castle Consumers’
Lately, I have been checking in with my customers asking them how long they think this robust door and window market will last. “Do you see this strong demand lasting all year long? If so, it is going to be another stellar year!” The answer I am getting most of the time is a resounding, “Yes, it’s going to be another great year!”
Answers like this are quite uplifting until I see articles like the one written by Diana Olick, titled, “The Housing Market Stands at a Tipping Point…” So, is the surge that we saw in the second half of 2020 a blip on the radar screen and are we now going to be headed into a nosedive? Fear not. I am much more optimistic!
Reason One: Mortgage rates may be rising, but it’s all relative. When a real estate or mortgage loan officer tells you that mortgage rates are rising, it’s mostly because they are urging you to pull the trigger on a mortgage now as opposed to later. “Lock in now!” they say, “because rates are going up!” The average contract interest rate for 30-year fixed-rate mortgages increased to 2.98% from 2.96% last week. Sound alarming? I think not. Realize that both numbers are below 3%. Yes, below 3%!
Check out Historical Mortgage Rates from the 1970s to 2021. “Rates in 1971 were in the mid-7% range, and they moved up steadily until they were at 9.19% in 1974. They briefly dipped down into the mid- to high-8% range before climbing to 11.20% in 1979. Interest rates reached their highest point in modern history in 1981 when the annual average was 16.63%. In the 1990s, inflation started to finally decrease somewhat. The average mortgage rate in 1990 was 10.13%, but it started falling, finally dipping below 7% to 6.94% in 1998. Mortgage rates then steadily declined from 8.05% in 2000 to the high 5% range in 2003. They averaged 5.04% in 2009. In 2010, mortgage rates entered the new decade at 4.69%. They continued to fall steadily and were in the mid-3% range by 2012. In 2013, rates went up to 3.98%. Rates began to rise after the 2016 presidential election. They reached their peak at the end of the start of 2019, when rates on a 30-year mortgage ran from 3.95% to a high of 5.34%. Rates declined throughout 2019. When January 2020 came around, the average rate for a 30-year fixed was about 3.7%. Then came COVID-19.
In response to the economic threat of the pandemic, the Federal Reserve dropped the federal funds rate to between zero and 0.25%. This move affected both short-term and longer-term rates consequently causing them to drop. This drop was made to encourage borrowing for home loans, as well as for business development loans. It also led to a large increase in refinance and mortgage applications. By June 23, Freddie Mac reported an average mortgage rate for a 30-year fixed rate mortgage to be 3.6%.
Do you notice something here? All of these interest rates in this entire article about the history of interest rates are well above 3% and yet a big deal is made out of a rise from 2.96% to 2.98%. Like I said, it’s all relative! Despite these recent increases, mortgage interest rates are still at an all-time low in terms of the history of interest rates!
Reason Two: Home values are going up, and so this means home equity is going up. With interest rates still sitting relatively low, this will continue to fuel the remodeling and replacement market. Homeowners will borrow against their rising home equity in order to make improvements to their homes. One thing that the pandemic surely has reinforced in the mind of Americans is that their homes are their castles! As a result, people are pouring more money into their castles in the form of home improvements including doors and windows. I call them the “Castle Consumers.” Increases in home equity combined with relatively low interest rates will continue to fuel the remodeling and replacement market. This love affair with our castles is not going away anytime soon, thanks to the Castle Consumers!
Reason Three: Home builders, being the resourceful and success-driven experts that they are, will find a way to use alternative materials to keep the cost of new homes relatively affordable while at the same time offering improvements in technology that will drive the Castle Consumers to seek out new homes, thereby keeping the housing market stable if not surging. I came across this article entitled 15 Cheap Building Materials for a Home on a Budget. Structural Insulated Panels (SIP) can be used that are described as being “like an ice-cream sandwich” with recycled-steel-framing surrounded by gypsum board and a waterproof exterior membrane. Concrete panels are another low-cost yet stylish option. Concrete sheets are quick to install and are very secure and stable. They have key advantages, such as durability since they offer a high degree of weatherproofing. At the same time, concrete panels also offer sound dampening properties which people who know me also know is very dear to my heart.
Stone cladding offers an alternative to (full) stone, which can be quite expensive. It is much lighter than a standard stone exterior and so it costs much less, not only because of lower material costs, but also due to the labor savings associated with faster installation. These are just a few examples of ways that builders can control rising material costs while adding unique benefits that will drive the Castle Consumers to invest in new homes. The old adage that “Necessity is the Mother of Invention” surely applies here.
So, after pondering the situation, I offer these three reasons why the strong surge in demand for doors and windows shall continue for some time. Thanks to the Castle Consumers!