378: Changing Habits of Home Builders & Buyers with Venveo's Zach & Beth

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It is my pleasure to welcome two industry insiders. Now, what industry are we talking about? Well, we're talking about the home building industry, but more specifically we're talking about the, the ingredients of the homes. I always have taught you over the years about packaged commodities investing and how the price of a property, of a house, an apartment building, whatever it is, is determined largely by the price of the ingredients. Look, if you're going to bake a cake, you're going to go to the store, you're going to get all the ingredients. If you want to resell that cake, you better add up the cost of all those ingredients and add a profit margin for yourself. Well, the same is true in the home building business and we have got two great indiscreet insiders here. So you are going to hear what the industry is hearing today. The home building industry, what they're struggling with in terms of supply chain issues. Materials, lumber prices, they skyrocketed, but then they came down. What about other prices? What about appliances? What about concrete? What about brick, if that's applicable? What about glass and steel and all of the ingredients? What about the copper wire in the walls? What about the doorknobs? What about the doors, the cabinets? All of these things really, really to us as investors. So we got two great guests here today. We've got Zach and Beth with us. They are in Virginia. They are with a company called Venvio. Tell us a little bit more about what you do. I don't know who wants to take that one, but we've got some great charts and graphs and if you are listening on audio only, this will be on the YouTube channel. But if you're listening audio only, we'll try and explain the visuals so they make sense to you too. But of course it's available in full on the YouTube channel. Go ahead, tell us a little bit about what you do as insiders.

Absolutely. Yeah. Jason, thank you so much for having us on your show. We're big fans and really excited to share some information with you today. As Jason was mentioning, we are a consultant to the building products industry. We work primarily with companies who manufacture products that go into the home, into what we call the built environment. So for most people, they're like, what in the world does that even mean? And what I tell people is I'm like, hey, if you go to Lowe's or Home Depot and you walk down an aisle, there's a pretty high chance we have a client on every aisle. And that's a very small portion of the manufacturers in the industry because, I mean, we're only talking about retail there, but we work with those companies to market more effectively their products to what we call the channel, which is like the home builder, the architect, the pro and the homeowner. Right. So we're trying to influence product decisions that go into the market. And so this has been a pretty wild year for us because as most people know, in the beginning of 2021, when the pandemic started, it was like, oh, my gosh, what's going to happen? Because all we know, recency bias is the recession, the Great Recession of 2007, and then it's been crazy since then. But, yeah, we're really excited to be part of the show and hopefully we've got some good information for you.

What do you each do with the company specifically? Tell us about that, Beth.

My job is director of digital strategy. That means that what I mainly do is work alongside the manufacturers that we work with to understand what's the business case. Why are you here talking to us? What are your business goals? What are you growing from revenue standpoint, who are you trying to earn additional business from? Whether that's home builders, architects, contractors, installers, and then how do we best target them through the digital landscape? So do you need to improve your website messaging? Is it an ads play? Do we need to partner with influencers who have an inside track with your audience already? Something like that. But it's really making sure, sure that anything marketing related should add to your bottom line. It should be a value add, not a value subtractor.

Great.

And Zach, my job is to make Beth make sure I look good. That's really all I do.

There you go.

No, so I'm the founder and CEO, so our team is right under 60 people right now. Beth oversees all of our strategic directives for our clients. I'm really focused on the direction of the business and making sure we've got the right information for our clients and right intel.

So, yeah, and I'm so glad you're both here because Our viewers and listeners today are really going to get an inside scoop on what the suppliers of all these raw materials are facing, dealing with, thinking, and in turn, what the home builders are facing and thinking. And interestingly, sometimes when prices come down of, say, lumber, for example, that isn't going to be passed on to the end user, the end consumer, is it?

No, it's not. Unfortunately. We talk a lot about what we call the four Ls, the four Ls that go into the cost of a home. You've got labor, so the person who's doing the work. You've got lumber, which we all have seen crazy skyrocketing prices. You've got the cost of land. Then you have law or legal things that are impacting the cost of a home being built. But if you just look at the lumber component or the materials we were prepping for today's show, and I don't know if our listeners know this, but lumber has been obviously super high, close to $1,700 back in May, excuse me, April. And then yesterday it's massive plummet. It's sub 600 right now and it'll probably change by the time this thing gets broadcasted too, or down. Who knows, without boring anybody here, you look at that and go, oh my gosh, I should go to Home Depot now and stock up on lumber. The reality is that that lumber was purchased that's on the shelf, whether it's at a lumber dealer or at a Home Depot or someone. It was purchased at a certain amount and they will continue to sell that until they sell out of that inventory. And then you will ultimately incur a lesser price. But it takes time for that to happen, unfortunately.

Sure does. Sure does. Zach, you shared some slides at a recent industry conference, I believe, and can you share those with us today? I mean, folks, you're going to get this without the cost of admission for an expensive conference. So here we go.

Let's dive in. And Beth, feel free to interject here too, because you've got some really good insight. The great thing about Beth is she interfaces with not only our clients, but also a lot of the builders and architects we interface with. So let's just, let's dive in there. We look at our customers like our customers are those manufacturers and those dealers in the space, but their customers are the builders, the architects, the pros, the individuals doing the work, which the cost of what's happening across the board impacts the investor. Like your audience, Jason, we always like to start by just kind of making fun of ourselves. A little bit. I don't know if you've seen all these memes out there. And for our listeners, there's a meme up here of a guy driving a truck, and the caption says, I passed a billionaire on the freeway this morning. It's because if you look at lumber.

Prices, the truck is full of lumber. He's got.

A truck is full of lumber. Thank you. Yes. Yeah, it's full of lumber.

And so. So the lumber prices have skyrocketed. So the lowest point was about 260 bucks. April 2020. And then was $1,545 the highest point, or did it go even higher? I think it went even higher, right?

I think it went even higher. Yeah, I think it was right below 1700 or right at 1700, depending on where you saw it. That was in April 2021.

And so this chart is, I believe, six weeks old, right?

Yeah, six or eight weeks old. Somewhere in there.

What is it now?

Oh, gosh, Beth, what is it? We were talking about this.

So today it's like $700.

Wow. I think it wasn't it below 600. I think it was, like, dive bombed.

Over the last couple of weeks.

That's amazing. But. But everybody needs to just put that in perspective. It's still higher than it was at the lowest point, and it's about the same as it was in, you know, 2018. You know, the media likes to sensationalize everything like it's the end of the world. But yes, you know, lumber prices are still relatively high if you're looking over at a fairly long perspective. Okay, good. So that's lumber, but what else is there? Let's maybe go to your next slide.

Lumber's not the only thing we look at. It's actually a very small portion of what we look at. It's interesting. And without getting too much into the details, we have manufacturers we work with who sell lumber, but not the kind that goes into the framing of your house. They sell other types of lumber. And so people intrinsically think, oh, well, all lumber's up. Your product should be up. And they're not having the supply chain issues, but they're capitalizing on the moment. And so they're able to build more margin in their cost because of the narrative that's happening in the industry. But when you talk about other commodities out there, you're looking at things like even everything from appliances to copper to even Styrofoam. If you think about the built environment for, let's say, an ICF insulated concrete form that goes into home. All of these things are up in cost and haven't necessarily seen the depreciation that lumber has recently. But we do think that we're going to start to see this thing mellowing out a little bit. But again, we could be wrong just based on we thought we never surpass 1000 in terms of lumber. There's some interesting things happening here in terms of the cost. We've seen a lot of articles out about how people are trying to save money in our industry. There's an individual here up on our screen for those that are listening. Lumber mills. At a point in time, it was costing a lot of money to obviously buy lumber. And so you're seeing people diy, you're seeing actual builders who are buying their own mills and trying to create their own mills. I was talking to a builder outside D.C. and he's like, I literally bought a sawmill because I wanted to try to reduce my cost because it was getting out of control. And then you've got that issue with labor which we talked about, Jason. So we have here. This is a tweet I saw. This is four of the seven ads on the billboard on the busiest road in Athens, Georgia are advertising for employees. What does that tell you?

Labor. Well, the stupid government is paying everybody more not to work. So they're causing inflation not only by money printing, as they typically do, but by incentivizing non work and forcing employers to compete. But by offering signing bonuses and higher wages even without raising minimum wage. They don't even need to do that. The government pays you more to stay home. The employer is going to have to pay even more to get you to come in, to get you to come out. It's very inflationary, which is part of our discussion. So let's go ahead.

That impacts. And Beth, you can speak to this. That impacts our clients and the manufacturers in multiple ways because the manufacturers need employees to actually build their products in their manufacturing facility. And then they need people to actually do the work on the job site. So they have so much demand to get it produced and they're having supply chain issues there. And then you have individuals on the job site and those builders are having a difficult time finding high quality work too.

Yeah, I feel like builders and contractors are saying to. Everyone's talking about labor and I feel like they're saying like, welcome to the club. Labor shortage in the construction world is not a new conversation now. It's certainly exacerbated over the last 18 to 20 months, but it's not a new conversation. There's been a labor shortage for I mean probably more than a decade.

Which by the way Beth, to your point, I do want to ask you just super quickly in the interest of time, but I'm sure people in your business are talking quite a bit about manufactured housing, 3D printed houses and stuff like that. I've debunked that quite a few times. But is that going to disrupt anything? I don't think anytime soon. But what do you guys think?

So I think there's two. You asked two different questions. 3D printed houses are clickbait. That's like interesting PR. It's eye catching, bug worthy. It's total hype. I mean just, it's not a solution.

It would solve labor problem to some extent though, you know.

Right. It's a similar, it's like a total scare tactic. Similar. You know they talk about AI is going to replace everybody or robots are going to replace everybody and what are we all going to do? And I have yet to really be concerned about that. Now. Manufactured housing, what's really interesting is the off site construction, modular construction that's happening in the building materials world is incredible. There's been incredible advancements. I'm sure your audience knows pre manufactured housing has a terrible reputation. You can actually filter it out. If you're just a consumer looking to purchase a home, you have to basically opt in to be shown houses in your market that are pre pre manufactured. And we're seeing that trend and shift change drastically. Basically it's like poor PR from the 60s that has negatively influenced what could actually potentially really amplify the home construction industry's ability to get more houses available for sale and for move in.

Yeah, it's been around since like the early 1900s. I don't know if you knew this. You could in Sears, in the Sears.

Robots.

And that's so funny. Like you could like buy a house and it was like all your house.

In the Sears catalog. Yeah, that was awesome.

Yeah, it's basically just a PR move potentially. And. But we're seeing manufacturers across the board one putting effort into the like. No, we need to educate the public that manufactured houses off site construction built houses are an incredible value add. They are faster, more efficient, more reliable. You know, there's quality to be had there and then there's the interior part where there's manufacturers dedicated to. We can build you a beautiful kitchen that's prefab. We can build you this beautiful, you know, HGTV version of bathroom off site. There's Tons of efforts behind it. It's really public perception is a big hurdle, though, right?

I agree that Americans just do not like the idea of manufactured housing. So manufacturing parts of the house and bringing them to the construction site that they'll go for, certainly trusses are one example. Other things, too. But I don't want to go, you know, in the interest of time, too far down.

We can talk about that all day long. That's a whole nother conversation.

We could even do another show on that.

We absolutely could. Don't.

Don't forget, we didn't mention the $7,000 house you can buy on Amazon. It's bogus, but I know it's clickbait.

It's total clickbait.

One other thing, too is in addition to offsite and modular, it's just the supply chain issues we're seeing too, because it's not just like wood is a commodity, but wood comes from different places. And same with brick, or if you look at things like paint or appliances, whatever it might be, all of these have different components that are experiencing different cost increases that are being passed down to the builder, which is then being passed down to the homeowner. The positive thing we are seeing on the other side is that home starts are increasing. There's been a pretty large, as you know, Jason, a pretty large deficit in terms of housing across America, even before the pandemic. I think the last numbers I saw is that we're at the level we're at, I think, in 2006 in terms of home starts that are scheduled to start. The highest we've ever seen, I think, is 2007. But in terms of need, we're still at like, what, a million home plus deficit? More than that. Something crazy.

Yeah. Well, Nar says 5.5 million homes.

Wow.

One other thing here, too, and one thing we do in terms of our industry is we do a lot of research in terms of what's happening around buyer behavior. So how are builders changing the way they purchase products? And how does that get passed on to the homeowner as well as architects who they don't necessarily purchase, but they do specify. And so we've got market research talking about how the pandemic has changed the way these different audiences that influence the housing industry buy. And what's really interesting is that there is a pretty large number of people who are trying new products in a way that they have in the past. And that's important to know because if you look at builders, for example, or contractors, they're very adverse to change. They don't want to try new products. They don't want to do things that might improve the quality of the home, whether that's from an energy standpoint or speed of production standpoint. But because there's supply issues and pricing issues, we're seeing larger numbers of people try new things. So there's a question here. This is directed towards architects. Did you try a new brand since the pandemic? 66% of people said yes. In a normal year, if we saw 30% of people, we're like, that's a pretty good year. That means people are trying to be innovative. But because there's such an issue with supply and pricing, this has seen a pretty large acceleration. And here's the other interesting thing is if we dive deeper into that and look at architects specifically who they're looking at residential as well as commercial and as well as multifamily, how satisfied are they with a new brand? Majority of people are extremely satisfied or somewhat satisfied. What's interesting here, and this is where we play, is how do they find these brands? It's all going online, which matters to you, the investor, which matters to the homeowner, because homeowners are incredibly more educated than they once were. And so we're seeing this radical shift towards moving things online from the materials being selected to actual homes being selected. And so I don't want to get out of our depth a bit, but it's interesting to understand and look at how these different audiences are changing the way that they purchase, which is then going to trickle down to how are homes being sold, how are homes being selected and actual home build, whether that's new construction or you're actually just buying a pre built one.

Yeah, I think there's something important there that you said, Zach, that is really relevant for Jason's audience, which is understanding the increased education of the homeowner, that they now understand the R value of their insulation. They now know to look for certain types of specifically rated glass to improve energy efficiency. They understand the difference between vinyl siding and wood siding and fiber cement siding and steel siding. We have a saying like homeowners will not be denied that in the B2B world of building material manufacturers, homeowners will take the time to dig deep and into elements of their home that you wouldn't think they normally would. It's no longer do you have a place where I can live in a city that I'm interested in living with like nice bells and whistles on the inside, but I'm now very educated about the home, the envelope, the built environment as a whole. And I am in a place where I can be more selective about those things. And I'm willing to invest because I educated myself.

So, Beth, that's interesting. I think you are 110% right about that. However, that is currently overcome by the market we're in. Meaning that so what? How educated they are. They're just buying anything they can get. Because beggars can't be choosers. Right. It's a seller's market. Inventory is extremely scarce, as we talked about a moment ago. Yes. They know what they're getting. Now, I think what you said applies more to when they're buying a new home, what they choose to buy and what they choose not to buy, when they're figuring out options and so forth. So, yeah, good points. But when the market does shift, that will become much more of a priority for home builders to build a better product because, you know, it'll be a buyer's market someday.

Yeah, yeah. Right now, it's. If you have it, I'll take it.

Right, Yep. Whatever you've got.

We were talking to a manufacturer recently who had, like, some poor reputation with one of their, like, one of their buyers, like a big builder. And the builder was like, hey, we know we stopped working with you like 15 years ago because we were really upset at you, but do you have any product? And they're like, are you kidding me? You literally cut us out. And they're like, we don't care. We just need product.

Right, exactly.

I think one other thing that's interesting too, is follows around that when we look at all of these changes that are happening and how people research and buy, what this is translating to is manufacturers are considering direct to builder, direct to consumer, more than they ever have before, which to your audience, so what everyone buys on Amazon, but to the manufacturers out there, they typically go through a distributor or two, then to a dealer, then maybe a retailer, then a builder, where that whole industry is being fragmented or defragmented, if you will excuse me. Which should hopefully have an impact on speed and cost eventually. But it's difficult to move a bunch of lumber, you know, house by house or builder by builder. There's a reason why there's dealers out there that last mile, right?

Absolutely. Okay, so look, sum this up for us. I mean, there's a shortage of everything, even lumber, although the price has come down quite a bit. I'm purchasing two new construction properties right at the moment. Both of them are delayed for one and only one Reason they can't get the materials. Now one of them is delayed even longer because they can't get the door trim. This is a real problem. What is the takeaway here? I mean, are we going to continue to see supply shortages or is that working its way out of the system? Was it all due to Covid? Where do we go with this and what does that mean to overall home prices?

The short answer, Zach, just disagree if I'm wrong. I think the short answer is we all see that there's an exit out of this. The majority of this in some sense is a result of a lot of industries, whether you're inside the building materials. Because a lot of the supply chain issues are much wider than just the building materials construction industry. Right. I have a friend who owns a microbrewery. He got the green light to stock in a local grocery store. Ever had everything except for the material to make the cans. I mean, that's one anecdote that I could share upon others and others and others. So it's not just our specific industry that's feeling these supply chain issues, which is why it's felt so compounded within our industry. Sometimes there's materials. There's literally not the packaging to package the materials in a way that I need in order to ship it. There was that immediate shutdown, right. The whole world shut down out of fear and then the ramp rate there. There's compounding issues with lumber with. There was an infestation in Canada right before COVID There's been a fire in Canada since COVID So there's been a lot of additional compounding factors to specifically diminish the supply of lumber. But then there's additional compounding factors across multiple types of manufacturing and facilities across the world that have just caused this trickle down effect. Everything that we're hearing is this isn't the state forever. We all overreacted and then underreacted to the ramp up that we would be needed and it's just caught. It has caused significant delays across the board. Somewhere in the next eight to 12 months, we should start to really feel momentum. Not just see a lift, but feel momentum. Those are the numbers that at least we've been given by manufacturers who are.

And when you say momentum, I'll translate that to relief in the supply chain shortages.

100%, yes. 100%, yes.

Here's the other thing too, Jason. A lot of people don't know is a lot of manufacturers, they have product. If you think about your trim, for example, they have product, but they're on what's called allocation. I don't know if you're familiar with that term, but what it means is they have to allocate their product to their biggest, best customers because there's so much demand. So they're firing their manufacturing on all cylinders. But there's so much demand from the bigger players that they have to prioritize. The bigger builders, the bigger institutions that are that need that product. Yeah, they have to. We have manufacturers like, hey, we're on allocation till the end of the year, which means we can't support new customers.

Yeah. Wow.

And so do they.

Can you imagine trying to get into the home building business right now? You couldn't get anyone to sell you anything. It would be just impossible to get the materials. Yeah. If you're.

That's impacting small builders. So like small builders, you think they're like they're killing it, but they're not. So you're seeing like small builders and trade professionals. If they see something that's on a shelf, they buy it and they'll buy all of it, even if they don't need it.

Right.

Because they're like, I have so much demand, but if I product, I can't make money.

Absolutely. It is a crazy time. It really is. It's surprising that the supply chain has been this much of a problem. Interestingly, even if lockdowns were for, you know, depending on where you are, it's all different. So we'll just call it six months to use a nice round number. Right. So if you had a half year lockdown period, it's a year and a half to a two year recovery from that, which astonishes me. I thought, okay, if we're closed for six months, then we're six months behind. Not the way it is. The lag is bigger than the closure. And now we might have more closures. Well, we do in some places already, so we'll see how it goes. Thank you so much for joining us, both of you. Really interesting. Beth, Zach, we really appreciate it. Give out your website if you would.

You can go to vendio.com, that's v n v o dot com. If you misspell that, you'll probably hit Vimeo, which is what my dad thought that we own for some reason recently. He's like, hey, I saw you guys.

You guys were doing really well.

Yeah.

I was like, no, you didn't.

Good stuff. Well, thanks again for joining us.

Thanks, Jason.

Yeah, thank you.

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