 Well, in general, of course, the market is weakening, you know, most of them still say order files are still out and very strong, but whether the pipeline continues, you know, that's the other question. Welcome to the Smarter Building Materials Marketing Podcast, helping you find better ways to grow leads, sales, and outperform your competition. All right, everybody, welcome to Smarter Building Materials Marketing, where we believe your online presence should be your best salesperson. I am Zach Williams, alongside my co-host, Beth Popnikov, and we've got a guest on the show today who I have tried to bring on the show, gosh, a handful of times over the last month. Super excited about today's guests on the show with us today. We are really excited to welcome Greg Brooks. He is the moderator for Executive Council on Construction Supply, and in case you're not in the know, that is a think tank for leading independent LBM dealers all over the U.S. and Canada. He's got incredible insight, incredible perspective. We're really excited to have him. Greg, thanks so much for your time. Well, thank you. Thank you for having me. I have been in this business a long time. I'm a steering committee member at the Harvard Joint Center for Housing Studies. I was one of the founding editors of a magazine called ProSales back in the 1990s, and prior to that, I spent 20 years in the business. Basically, I got a job at a lumberyard after high school working for the summer, and I wound up putting myself through school working in lumberyards. I happened to have been an English major, so when I got out, I was qualified to work in lumberyards. So, I've just been watching and studying the industry for a long time, and I have no particular training that equates to being an economist or anything. What we try and do is just kind of look at the common sense what happens day-to-day on the ground, because a lot of times what the experts say happens, they have much more detailed knowledge than I do, but once you get down to the day-to-day impact of that, it's often different, and so that's what we try and look at. Well, I'm going to push you on that, Greg, because I mentioned this to you, but your last couple of newsletters, I feel like have been absolutely on fire. For listeners, if you don't subscribe to Greg's newsletter, you absolutely should. It's, I think, some of the best insight out there about what's happening in the housing space, the dealer space, building construction, and I know you say you're not an economist, but man, some of the insights you share, it wasn't the last one you did on Canada, the Canadian one, but the one right before that about what's happening with housing supply, it is awesome, so good. I know I'm really raving about it, but Beth, I sent it to you and a couple of people- It did, absolutely. It was phenomenal. It was so good. I was like, how is this content free? I'm like, am I on a paid newsletter that I shouldn't, that I'm not paying for? But no pressure on the next edition, right? I know. Now you've got all these people listening. They're going to now sign up. Yeah, that sounds good, but yeah, I just try and figure this out from the day-to-day perspective of a dealer, what are they going to be looking at there? And of course, people are worried about all the talk of a recession. And it was interesting, who was it? It was Fortune magazine did an interview just a few weeks ago with Robert Schiller, the Yale economist of the Case Schiller Index and Nobel Laureate and so on and so forth. His opinion is that we're likely to have a recession because we're also depressed about it, that we're talking ourselves into it, which is to say, why are we doing this? But at any rate, yes, that's that's kind of the issue is just, you know, what does it mean for somebody on the ground? We record these podcasts and then like something will happen in less than a span of a week from when we actually released them. And if I look at it today, so we're recording that the Fed hasn't come out with their rate hike yet, they're projected to do another 75 basis points, you know, this next week. What is your take? Like just macro, if we go even further out, Greg, we look at like the housing market construction as a whole. If you're talking to a manufacturer or dealer, what are you telling them about what's happening today and how they should be thinking about their business? Well, you know, actually for all the angst and all the complaining things are going at this point, just about like they should. The whole purpose of this is to slow the housing market down. When you look at the things that go into the consumer price index, something like 40 percent of it, if you're looking to, this starts to get, they kind of get off in the weeds here. But something like 40 percent of it is housing costs. And so if housing costs are going up, that's inflation. And so if you're going to do anything about inflation, the number one place you got to look is the housing market. And slowing things down. I mean, right now the Harvard Joint Center for Housing Studies puts out an annual report called the State of the Nations Housing. And one of the things that they have been tracking in recent years is this kind of real basic measure of how affordable housing is, which is the ratio between the median home price and median household income. And if you go back into the 80s and the 90s and even earlier than that, it was like rock solid somewhere around 3.1 to 3.2 times income. In other words, if you made $50,000 a year, you knew that a home was going to cost about 155 or thereabouts. It spiked up during the housing bubble of 2006 to 2007. I got to almost five and then it fell back down. Of course, your member price is falling in the at the end of the bubble. And it didn't quite fall all the way back. It fell to about four and it just sort of floated around the low four to four point two for most of the 2010s. And now all of a sudden covid came. And when covid hit in a two year span, it jumped from four point one to a record now five point three. That's the highest ever in the United States. And, you know, that's like a 30 percent jump in two years. And so obviously that's what you got to attack. And, you know, it never feels good to be on the receiving end of that attack. But but that's, you know, that's what has to be done in order to get things back into balance. Yeah, I've seen a similar chart. But if we look at what happened during covid, a lot of people weren't necessarily concerned about that because of the lower rates, which meant lower mortgage payments. Right. Now that mortgage payments are going up like I saw a stat recently. And forgive me if we've listed this before on the podcast. But it said that the average home, you know, that cost $450,000 a year ago to get the same mortgage payment would cost like right above 300,000 now to get the same exact mortgage payment today. And like, and that's what's causing this adjustment. But if you listen, if you look at like what realtors are saying, if you look at what homeowners are saying, it's it's more it's moving more towards and I would love to hear your take on this, Greg. But from what a lot of people are saying, is it moving more towards a normal state of a housing market? Like I listen to this one, I like to listen to lots of different podcasts when it comes to real estate, just to hear different perspectives. And there's this one real estate investment podcast that focuses on like multifamily and things like that. And I was listening to them and they're like, oh, you know, we're moving more towards a normal state and people are adding the the inspection back into the offer. Like that got inspections, inspections got removed during covid, which like they were kind of chuckling about because they're like, can you imagine like, like five years ago, we're moving an inspection like that's absurd. But like now we're like, I didn't see the house. I'm offering a hundred K over asking and there's no inspection, no contingency, nothing like that was what we were in. And like now we're like, oh, my gosh, people are adding inspections back into this. Well, like, of course, you know, we're moving back to to a more normal state, a more normal environment where it's not a hundred percent in the favor of the seller. That is correct. Yeah. No, it was and I mean, if you look at what happened during covid, you know, first of all, everybody wanted to get away from everybody else, you know, not social distancing, but get me out of this apartment in the city and get me into a suburban single family home where I can get away from all those sick people. I so you had that. Plus, during the time when we were doing those shutdowns in 2020, everybody who kept their job was had no place to spend the money. You weren't going out to restaurants. There was no Starbucks and all that sort of thing. And we built up something like three point seven trillion dollars in excess savings, in other words, more than more than they projected we would normally have. And so now all of a sudden there's been all kinds of money. And then there's also, like you mentioned, the interest rate thing, which interest rates have normally, you know, they've never been as low as they were following the Great Recession and held that way along. So it was kind of this artificial thing that distorted the market and it distorted it in a hundred different ways. It isn't just, you know, housing was was able to inflate because because mortgages were so cheap. But the the mergers and acquisitions frenzy that is going out there that has been going on was caused by low interest rates that forced pension funds insurers to, you know, look elsewhere for higher returns. So, I mean, you know, those low interest rates have distorted a lot of different things and housing is definitely one of them. So, Greg, let me ask you if you could just like grab your crystal ball really quickly, because we've seen incredible increase in prices in the building materials industry. So, you know, lumber has been a hot topic for 24 months or so. I've kind of lost track at this point. Zach and I joke that like we've never been more popular at cocktail parties because like suddenly building materials and lumber is interesting. You know, normally you tell people that you're in building materials and they're like, OK, they just kind of like move on. But right now people love to talk to us, right? OK, so lumber prices hot topic for 24 months. Everybody's talking about housing starts, housing costs. I mean, you don't even have to be in the market for a house right now for that to come up. I can't remember the last time I was with a group of people and the cost of housing didn't come up. Let me say two things. Zach, you were at a builder panel virtually. This was about a year and a half ago listening to builders and lumber dealers talk about the price of lumber. Do you remember this? Yeah, they were talking about how lumber prices were coming down. And basically the question was asked, well, are you guys going to start reducing prices? And they were like, no way. We've retrained everybody that lumber now costs 15 times more or, you know, whatever costs 30 percent more. And we'll be keeping, you know, we'll bring it down a little bit, but we're not going back to like 2018. And then, Greg, in your most recent newsletter, which Zach was referencing, you have. Zach did send it to us. And my response to him was that last line where you said, prices need to come down speaking about housing prices. And you said, I'm quoting you. Builders probably have some room to make that happen, too. Versus 2019, D.R. Horton's 2021 net profit was up nearly 60 percent. While in our it was up 94 percent. That's not revenue. That's profit. That's profit. Man, yes. So how do you like when I ask you to take out your crystal ball? Sorry for my preamble. But when I asked about your crystal ball, my question here is, where are we going from here? Everybody is making a windfall in a industry that typically has pretty tight margins. So what's the where do we go from here? What's the plan? It, you know, it settles out eventually. It takes some time for it to settle out. But, you know, when prices are that high and builders profits are that high, that encourages to builders to build as much as they can. That creates, you know, more supply and which creates more competition, which tends to bring the price down. And that's kind of always been the way that this industry has worked. That's our famous boom and bust cycles, which last six to eight years. And then we have a year and a half to two years of total nothing. And then we're back on board again. Well, that cycle appears to be broken. We had a long, long run up in the in the 1990s and the 2000s until we got to the bubble, a crash. And then we've been kind of behind the ball ever since then. So so it's kind of, you know, it's kind of weird that way. But now that people have stopped by, you know, housing prices are going to come down. Well, they already are. They already are like they already are. Now, I don't think we'll see them go back to the way they were pre covid. Like we saw some markets are 40, 50 percent up from 2019. But you're seeing 10 percent, 15 percent reductions. And that's on homes from, you know, existing owners as well as builders as well. You know, yeah, we're seeing across the U.S. I, yes, and particularly in the most overheated markets, you know, if everybody's got to live in Boise and Sarasota, then those places are going to be real expensive to live in, because everybody wants to live there. So, you know, it's like, go to Blacksburg, you know, go to Louisville, Kentucky or Iowa City or something like that. And you'll find some reasonable prices. Not in Blacksburg. Not in Blacksburg. I can't speak for Louisville. I'm not a wise man. Yeah, I take that back. I take that back. But, you know, the other thing to remember about that in my expectation is that that, you know, well, two things to keep in mind. First of all, if we're talking about the price to income ratio, it doesn't matter if home prices come down all that far, if wages were to go up, you know, if that changes the ratio too. So if that should happen, then everything comes back into balance as far as the price to income ratio. The other thing to keep in mind is that even at five point three times income, the United States is still the single most affordable developed country in which to buy a house. Canada is closer to eight. The UK is eight. France is like 12. Japan is like 12. They're all very much more expensive than the United States for people. So so it's in particularly if you're willing to go to Iowa City, which is a beautiful place, by the way, you know, it's, you know, you can get a home and it's and it's pretty affordable. So I mean, the interesting part to me now is how far is this remote work trend going to go because that's what enables Iowa City? Yeah, it's a great question. I think the other thing I think about too, Greg, and I want to hear what you're hearing from lumber dealers, because now you've got a great pulse in your communication with them. But there was a lot of talk over the last couple of years that like, hey, millennials are not going to want bigger homes or they're not going to want a home. And now we're seeing millennials who are moving into the peak season of their lives where they want to purchase. Covid has made them want bigger homes than what people anticipated. Right. And so I'm curious to get your take on what you're hearing from lumber dealers specifically, because they sell to the local builder. They sell to the big builder. Like you're, you know, and I want to hear from you. What are they telling you? Because a lot of them, they come to you for insight, but you've also probably probably also hearing from them like, Hey, this is what we're seeing in the marketplace and it probably differs from market to market. But can you give you some give us some macro insights about what you're hearing from them? Well, in general, of course, the market is weakening. You know, the I most of them still say order files are still out and very strong. But whether the pipeline continues, you know, that's the other question. We're in great shape. You know, my builders, they're booked for another year and a half. But, you know, and I've had people tell me this, I don't think it's going to affect me because my builders are booked for a year and a half. And by the time we get a year and a half down the road, then the pipeline is going to start up again with it. And so they haven't really been hit by it hard yet, you know, and probably with a few exceptions to that. But I would describe their mood is more caution than anything. If they've been around a while, they have been through recessions before anybody who's been around for 20 years, went through the great recession when, you know, that was about as bad as it can possibly get. And nobody's saying it's going to be anywhere near that bad. So so I think it's, yeah, you know, we'd rather have a boom. But but we know how to deal with this. And so I don't think they're particularly worried, at least not at this point. I mean, you know, like I mentioned a couple of newsletters ago, you know, it's like jumping off a six story building, you know, it's the the following is no problem at all. The landing is where it starts to hurt. And so we don't know where we're going to land yet. So I listen to this really interesting Malcolm Gladwell podcast recently. I don't know if you're a fan of his, I love his stuff. It's awesome. He has this podcast called revisionist history, but he was talking about how and it had nothing to do with the economy, but he was talking about how people don't ever really fix things until there's something really wrong. Right. And so, I mean, if you look at the great recession, for example, there's a lot of things really wrong with our financial system that got quote by fixed, you know, through regulation, whatever, because of that situation. And you're seeing a lot of these people like Elon Musk and other well known executives saying, Hey, like, Hey, like a dip in the economy isn't necessarily a bad thing because it forces you to fix the problems that exist in your business. That hot economy covers up because money's flowing and people are just buying, you know, there's issues in every single business that a recession causes you to go, okay, should we really be operating that way? Should we really be doing it this way? And if I think about lumber dealers and manufacturers struggle with this too, is like, is labor is one of the biggest issues. Yeah, right. And so like, you know, and I think that this is an opportunity for regardless of who you sell to or how you sell, to be thinking about how you can improve those types of problems in the industry. Right. That is absolutely true. And that happens at all levels. I mean, you know, the first thought there is that no, a recession is not a problem for you for Elon Musk. And that's, you know, that part's true too. But for the average lumber dealer, yeah, it's an opportunity to change things, make things more efficient. I mean, look at what we're doing right now on Zoom. You know, four years ago, I, you know, getting people to be on a Zoom call was like pulling teeth. They just, we don't do that. Now it's absolutely totally routine. Everybody has changed it and they haven't really scratched the surface of what you can do with Zoom yet. You know, how can this change the way that I sell building materials? You know, I meet with customers. Can I do that on Zoom? And we're still getting acclimated to that thing. But, but yeah, all that stuff, you know, it forces you to start thinking about things in a different way. The issue with labor, and this is, well, this is partly for builders, but, but, you know, a lot for dealers too. You know, there was, it has been a long, long time since anybody has said they wanted to be anywhere near the construction business. Um, NHB has done studies. I used to quote one back and done by a magazine called American Demographics back in the 90s, where they asked high school students to rank their favored up and coming profession. Where, where, where did they want to spend their life? And there were like 254 choices and Carpenter came in number 253 just ahead of Cowboy. So we have not been popular for a long, long time. That was a totally different situation when I was coming up in the 1970s. It was cool to be a carpenter. But at the time, the average carpenter was making like 35 to $40 per hour in today's, today's wages in today adjusted for inflation. Now it's like 25, 28, $28. And so, you know, money makes a big difference in all that. And, um, you know, if there continues to be wage pressure, what it does for dealers and probably for builders too is it pushes them to figure out ways to be more efficient because you can't find people cheap. And, um, you know, in our, in our think tank meetings, we talk about the, the 80, 50 rule. Everybody knows the 80, 20 rule, you know, and, um, the 80, 50 rule is that you can get as much done with 50 people averaging $80,000 per year as you can with 80 people averaging $50,000 per year if you're managing properly. And so that's kind of the next big challenge, or at least the thing we're talking about a lot is how do you get the people who can be, you know, you know, full scale entrepreneurs or intrapreneurs and, you know, unleash them so they can do all that stuff and pay them properly for the contribution they make and reduce your labor costs or make your labor costs flexible to go with your, your business. So labor is it. I love, I love this angle, Greg. So obviously we talk a ton about labor on the podcast and we had someone on within the last six months and they were started talking about, you know, there's a stigma that we've just never really been able to overcome around labor. It's like, you know, it solves it's really hard to make fun of somebody who's who makes $175,000 a year. And I was like, yeah, totally. It's like, I mean, that's just you just throw money at the problem. Boom, stigma solved. Like, let's just cut out all of the, the razz, all of the like, we don't have to do job fairs, we're not to convince you, we're not to do trainings and like cool events. It's like, you make $175,000 a year out of high school. Are you interested? Yeah, totally. Well, Greg, you had, you had me, you had me host a panel last year at your event in Austin about like, how do you recruit more effectively, things like that? And there's like 15, 20 lumber dealers and even manufacturers around this table. And like, I'm trying to be like politically correct and listen to people and about them. I mean, a lot of them, they were complaining about the cost and issue of labor. And you kind of come in from the side and you're like, you kind of look at me and you're like, they just need to be okay with paying people a bunch of money. That's just where they are. And I was like, I was like, you're right. Like that's what that's what solves. I mean, that solves the problem. It's not going to solve, help your P&L. But what would you rather have? Like, would you rather have labor that you can count on? Or would you rather be spending that money on, on turnover and training and recruiting and all of that? Yeah. Yeah. And the other side of that is that you may have a lot of people if you don't have a very attractive job, chances are you've got a lot of people who are willing to put up with a not very attractive job and not working very hard at it as a result. And so to go along with that, you need to figure out ways to, to be able to measure what they're doing and pay them accordingly for what they're doing. I know one dealer, I've known a number of dealers who've done this, but one in particular worked out a system for his load builders, which are the people who package up those framing packages in the yard on a forklift and get ready and his delivery drivers, where he started paying them based on the weight that they had handled. And it was a big project because, you know, your, your ERP system doesn't tell you how much a two by four, 18 feet long ways. And so you got to put that all in manually. And then you got a benchmarked for a while. He got them to that point where they went through that process. It was about it was over a year, really. But when he started to switch people to that off their hourly wage and onto this, this whole thing, some of them, some of them didn't want anything to do with it. They left, they left, they quit. Others embraced the whole thing. And next thing, you know, he's got one guy who wants to out compete everybody else. And he's all of a sudden making 75 to $80,000 a year building framing packages, but he's building twice as many as the next guy's too. He's hustling. That's awesome. Yeah. He's hustling, which all of a sudden kills. Who do you want? Yeah, who do you want? Yeah, you want that guy. And it also tells everybody else, here's what's possible. So now you just can't slack off. And so now he's got this super high productive operation, you know, and he can measure the productivity and it's worth it to pay 75 or $80,000 to a blue collar worker. You know, I just, you know, this this meme has been going around for ages and how millennials do not want to do physical work, you know, we want to be, you know, we want to work for Google, you know, you know, that sort of thing. And I don't know, say, you'll have to tell me how true that is, because you're there and I'm not. But I, but I've never really quite believed it. And I definitely don't believe it about Gen Z or is behind it. Because they're flat out saying we don't mind working hard. And, and frankly, the physical, you know, the physical work of being out in the yard or building a house and stuff like that is actually fun when you're told, oh, yeah, it feels good. You know, that's just, you know, you get a good tan and you, you know, you, you get big muscles and all that for yourself, Greg. For listeners, for those of you don't know, I don't tan very well by very well, I get an off shade of white in the sun. Greg, this has been awesome. I can't thank you enough for coming on the show. If someone wants to subscribe to your newsletter and or connect with you, what's the best way for them to do that? If they go if they want the newsletter, it is lbmexec.com. My email address is Greg greg at lbmexec.com. And so you can, you can catch me easily that way. And, and, you know, that's just I probably, I probably won't won't try and sell you anything. I probably just want to pick your brain and find out what's going on in your part of the industry. So feel free, please. That's awesome. Greg, thanks so much again. And I encourage anybody to make sure you subscribe to Greg's newsletter. It is awesome. No affiliate benefit on my part by plugging. I just think I just think it's, I just think it's great. I think it's really, really great. I mean, Greg, again, thank you for coming on the show and making some time, your contents just awesome and your insight is well received. And for listeners, make sure you reach out to Greg, follow him. And if you enjoyed this episode, enjoyed our content, you can check us out at venue.com slash podcast to subscribe and get more. Until next time, I'm Zach Williams alongside Beth Puppyglove. Thanks everybody.