Hardware Retailing

DEC 2017

Hardware Retailing magazine is the pre-eminent how-to management magazine for small business owners and managers in the home improvement retailing industry.

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Page 43 of 70

December 2017 | HARDWARE RETAILING 39 the country. By our estimate, it would be a roughly 10 percent decline in home prices. When you look at homeowners who are staring at a 10 percent loss in their homes, they're looking at an immediate $26,000 loss for an average-priced house. I don't think any homeowner will be in a position to think about remodeling or building a new home given that significant loss. For new home sales, I foresee a tremendous impact as well. I see a negative impact for new home sales and the remodeling industry if the tax reforms go forward as currently written. HR: What do 2017 U.S. housing trends say about the economy overall? GR: Considering that before the recession, it was the housing industry that put the economy in recession, in a sense it's been housing that brought the economy back. With price appreciation, homeowners' wealth has also been increasing, which has meant that homeowners have been a whole lot more optimistic and have been spending a lot more, which drives the economy. In 2017, due to a slowing housing market, we're likely restraining some level of economic growth. Going into 2018, my expectation is that at the current rate, we'll continue to see soft economic gains. HR: What growth and challenges have the residential and commercial real estate markets experienced this year? GR: The one common challenge that both residential and commercial markets have experienced this year is a tightness of inventory. From there, the other common thread is price appreciation. We've seen a 6 percent price appreciation on the residential side, which is significant because it far outpaces the trajectory of income growth. Obviously that impacts a lot of potential buyers. When we look at the fact that interest rates are expected to increase, that impacts first-time buyers. I see tightness of inventory, accelerating prices, strict mortgage underwriting standards and availability of capital as the major factors in residential and commercial real estate markets. HR: What should homeowners and retailers be mindful of as we head into 2018? GR: Consumers have been feeling a lot more optimistic about the market and have been spending a lot more freely. We see that in auto sales and household appliance sales. I think going into 2018, as long as unemployment and wages remain on an upward trajectory, consumer optimism and spending are likely to grow. I think consumers should pay attention to tax reform. There are significant changes proposed to the treatment of taxes for individuals and corporations and any of those changes are likely to impact their bottom lines. So consumers and retailers should pay attention to Congress and make their voices heard. For retailers, I think the outcome of tax reform is likely going to alter a lot of business practices moving forward. If we're seeing a decrease in wealth across the board, that's likely going to reduce the optimism and lead to lower spending, which for retailers, means a reduction in sales in the future.

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