Debt and Other Economic Factors Affecting the Building Product Industry

Some things don’t change, such as the importance of building products CMOs staying attentive to the economy as they make long-term strategic marketing plans. This is, in part, why we’re revisiting the factors CMOs should scrutinize as they plan for the remainder of 2024.

We’ve Seen A Version of This Plot Before

The last time we went deep on this topic, consumer debt was decreasing, as well as mortgage debt, but (spoiler alert!) not today. If a CMO hasn’t looked up recently and considered the economy, he or she could easily make marketing plans that disconnect from key audiences.

One marketing strategy is to just do a 180-turn on everything done when the economy was humming along, but that seems a little too casual of an approach. Let’s look at the economic factors that affect the building products industry and how they might affect current marketing efforts.

Consumer Debt on the Rise

Consumer debt hit a record $16.9 trillion by the end of last year, which is an increase of $394 billion, or 2.4%, from the prior three-month period, according to the Federal Reserve’s Quarterly Report on Household Debt and Credit released in February. Most debt is connected to mortgages, but credit card balances and delinquencies showed they were on the upswing also. According to the report, credit card balances increased nearly 6.6% to $986 billion during the quarter, the highest quarterly growth on record, based on New York Fed data going back to 1999.

Despite the Federal Reserve’s series of rate hikes since last year, increasing interest rates burdened the housing sector, as mortgage originations dropped to 2019 levels during the fourth quarter of last year, according to the New York Fed report. Add to consumer debt the initial fears of a crisis in the banking sector when several U.S. banks stumbled before the Fed initiated a broad emergency lending program and it’s a mess.

Impact of Interest Rate Volatility on the Building Product Supply Chain

Interest rate volatility has significant implications for the building product supply chain. As rates fluctuate, so do the costs associated with borrowing and investing in supply chain improvements. In periods of rising rates, companies may hesitate to expand operations or invest in new technologies, impacting the flow and availability of important materials such as timber and concrete. This unpredictability can disrupt production schedules and lead to delays in construction projects, further complicating efforts for marketers to plan and allocate resources effectively.

But Wait, There’s More

All this debt and (near) destruction is relevant for the building products industry as the primary debt increase was in mortgage balances. But, just when we thought rates would skyrocket toward the 20-year high they hit in 2022, the market underwent a slight downturn. Mortgage rates fell in late March, after five consecutive weeks when they increased. The 30-year, fixed-rate mortgage averaged 6.42% for the week ending March 23, down from 6.60% the week prior, according to Freddie Mac. According to multiple financial advisors, “housing market watchers are holding out hope that interest rates already hit their peak last year.”

The economic rollercoaster ride affects the building products industry because wary consumers tend to make fewer home restoration or new-build plans. Economic conditions within the building product industry can vary widely by region. Areas experiencing rapid urban development or high employment growth might see increased demand for building materials and contractor services. Conversely, regions with stagnant economic activity may see a slowdown in new construction and renovation projects. Marketers must tailor their strategies to these regional differences, using localized data to better understand market opportunities and risks. By doing so, companies can optimize resource allocation and target specific markets more effectively. On the other hand, according to an article in BuildersFirstSource, “A single-family home is in its ‘prime remodel years’ when it’s between 20 – 39 years old, and recent data show more and more homes falling into that category with every passing year, and that’s a trend that’s expected to continue for the foreseeable future.” If the numbers indicate thousands of homes are in their “prime,” their owners may choose to fix them, rather than sell them.

Use Predictive Models

Historical data, combined with economic markers such as consumer and mortgage debt, can be used to create predictive models that show how different scenarios your business faces can serve as a springboard to develop relevant marketing strategies and tactics to use in various economic circumstances. During economic downturns, strategic partnerships within the building product industry can be very helpful for sustaining operations and capitalizing on limited resources. By forming alliances with suppliers and other industry players, companies can share market intelligence and streamline supply chain processes. These collaborations help reduce costs and mitigate risks associated with economic volatility, providing a buffer against unpredictable market changes. Aligning with partners who have complementary strengths can thus create a more resilient business model, encouraging innovation and growth even in challenging times.

If rising prices in stone veneer, deck materials or plywood, or supply issues in glass are impacting your business, you might need to consider a pull back on discounting, or move your marketing goal to emphasize your company’s sustainability or origin story.

Remember also that aggregate economic changes can alter your audience’s pain points, which means you may still motivate them to part with their dollars, but your messaging must be more narrowly focused, or change in tone or cadence. 

For example, homeowners whom you might have considered aspirational and expansive in their home vision when interest rates were lower may now be more attuned to the price or scope of a project. You may not sell a complete remodel vision, but that bathroom tile could still get replaced. Refreshing an existing segmentation based on what’s happening in the current economic market is a key strategy. According to MarketWatch, the Global Building Products market is anticipated to rise at a considerable rate between 2022 and 2029, so consumer debt must be reconciled with such a prediction.

Marketers in the building products industry can excel if they always keep one eye on the aggregate economic indicators when planning their strategies to promote and sell. Stay tuned. This plot could change again.

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