The materials used for roofing varies depending on where the building is located. In the U.S., there are several types of roofing materials used such as tiles, solar panels, sheet metal and asphalt shingles. The roofing industry has faced many challenges, including a decline in new housing starts, but demand is expected to increase going forward with the gradual recovery of the U.S. economy.
While the primary sales channel for residential roofing shingle is distributors who sell directly to contractors, retail outlets, such as hardware and building materials stores, supply product to consumers and contractors, too. Hardware stores have been hit particularly hard by the recession, suffering declines in 2008 and 2009. Competition is strong between local neighborhood stores, lumber yards, building material stores, hardware stores, and large retail chains such as Home Depot and Lowes. In 2009, the number of store locations decreased about 4% and it is anticipated that more operations will be undergo mergers, downsizing or liquidations in the short-term.
Renewable energy has been a key topic in recent years and has stretched itself into the roofing industry, as solar panel roofs have been increasing in popularity. For example, Dow Chemical recently announced the production of thin-film solar roofing shingles, which are expected to hit the market in 2011. Although the price tag for this new product is expected to be about double the cost of standard asphalt roofing shingles, solar roofing manufacturers are likely to become a serious competitor in the roofing industry in the future. Dow Chemical is currently making claims that solar roofing products will pay for themselves within a decade of installation, with savings in utility costs. Also, government incentives available to consumers who make their homes more eco-friendly will help make these products more affordable. While the topic of solar roofing products is relatively new, the potential impact it could have on the roofing market over the short and long-term future may prove a key factor in the market.
The roofing industry is dependent, in part, on the availability of materials supplied by the oil and asphalt industries. The amount of crude oil available for processing was discussed in more depth in our recent insight, Oil: Inventories Remain High but Demand Expected to Increase, and in AccuVal’s industry insight on Asphalt: A Case of Déjà Vu, a more in-depth overview is presented on the supply and demand drivers for asphalt. It is important to note that production of the sludge, which is further refined into asphalt, has been decreasing at a fairly steady rate. If supplies of asphalt continue to drop, this could adversely affect the availability of asphalt roofing materials.
There are two primary drivers for the roofing industry: roofing renovation and new construction. While renovation is fairly inelastic and need based, new construction demand is driven by the residential housing market. The value of total residential construction totaled approximately $288 billion in 2009, approximately 50% of which was consisted of new single family housing construction ($140 billion). New multifamily housing accounted for an additional $27.5 billion whereas home improvements totaled about $120.5 billion. The value of new single family housing construction has fallen by an average of 20% per year for the last five years, with the total residential building market decreasing by 14% per year over the same period. Revenue has declined an average of 15.7% per year over the past five years, as the market has seen the lowest housing investment in decades.
In 2009, the fiscal stimulus package included approximately $5 billion of funds to be used for the “weatherization” of up to 1 million homes. Additional initiatives set by the Obama Administration to assist first-time home buyers entering the housing market have also had a positive impact on roofing demand over the short-term. The Home Buyer Tax Credit subsidy expired on April 30, 2010 but has been extended for scheduled closings through June 30, 2010. This, in turn, has helped to clear the high number of unsold properties, thus improving demand in the new housing market. Pending home sales rose approximately 8.2% in February 2010, which was the single-largest monthly rise in home sales since October 2001.
Approximately 70% of roofing projects are handled by professional contractors and 30% by the “do-it-yourself” segment. Regardless of whether a contractor is hired or the homeowner decides to tackle the project independently, a certain amount of capital is required for the necessary materials. The economic recession has led to a decrease in the number of homeowners able to obtain the funds needed for either option with a refinance or line of credit. Fluctuations in interest rates for homeowners can result in consumers postponing housing expenditures until more favorable interest rates are available. Finally, some banks are being closed by the FDIC and loans are being transferred to other financial institutions, which can also make it challenging to obtain the financing needed. With so many variables still in play, it is the expectation of the U.S. Treasury Department that lending standards will most likely return to “normal” during the second half of 2010.
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