Backlogs Ease, but a Potential Demand Surge May Be Coming

Widespread supply chain issues in materials and transportation affected many industries, including housing. Factors such as raw material shortages in everything from aluminum to zinc caused delays and extended lead times across many product categories.

The housing market experienced a surge in demand. Home improvement projects soared, straining supply chains and extending backlogs, becoming especially evident in the window and door industry.

Windows and doors require many components sourced from many different suppliers, and disruptions in even minor components cause widespread delays. In our monthly survey of building materials dealers at John Burns Research and Consulting, windows were the product most often cited as leading to project delays throughout 2022, extending lead times into 2023.

As interest rates rose in 2022 and inflation impacted consumer spending, demand for building products slowed. This waning demand, coupled with improved supply chains and logistics, allowed manufacturers to catch up with production, and our research shows that for most products, lead times are back to pre-pandemic levels. But while lead times have largely returned to normalized levels, price increases implemented to offset material and labor inflation over the past two years appear to be sticking.

Structural tailwinds expected to create a rebound in demand

At JBREC, we expect a rebound in homeowner investment in repair and remodeling projects once stability in the overall economy returns, underpinned by:

• 24 million homes will reach “prime remodeling years” by 2027, defined as those homes 20 to 39 years old and ripe for replacement products.
• 85% of all mortgage borrowers are “locked in” at rates below 5%, discouraging new home purchases at higher mortgage interest rates, and driving homeowner demand for existing home upgrades.

We also believe the Inflation Reduction Act will generate demand for many building products, including windows. This legislation introduced major changes to federal incentives for residential energy efficiency upgrades through 2032. The impact of these incentives on the window and door industry is yet to be determined as homeowner awareness of these incentives remains low. A recent study of homeowners by our New Home Trends Institute showed that 52% of homeowners were unfamiliar with the program, suggesting a significant opportunity to upsell qualifying products. Our analysis shows that a 1% increase in adoption could impact the windows and doors market by over $3 billion.

Is the industry prepared for the increase in demand, or will history repeat itself?

Many manufacturers have cited redundant sourcing of critical components, a beneficial strategy should supply issues arise. This also allows manufacturers to build up sufficient safety stock to ensure continuous production.

Companies have also noted increased investments in automation and, in some instances, less-efficient manufacturing facilities closed and replaced with newer, more efficient plants. One reason for these investments is the persistent labor shortage.

The industry must continue proactively adapting its production capacity, inventory management and logistics operations to meet the expected demand. Manufacturers that have optimized their component sourcing strategy and production process have an outsized opportunity to benefit. And contractors would be well advised to continually monitor lead times with manufacturers to set expectations with homeowner customers.