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Trex CEO: How rising mortgage rates are driving home renovation

Mortgage rates are beginning to climb back to 7% percent, pushing many prospective home buyers off the market. With warmer weather approaching and homeowners staying put, home renovations may see a surge in demand.

Bryan Fairbanks, CEO of composite decking manufacturer Trex (TREX), joins Yahoo Finance to discuss how the company figures into the current housing market.

Though Fairbanks states that most of Trex's business is tied to repair and remodeling within existing builds, Fairbanks signals he isn't worried about the housing market picking up steam: "Interestingly, when the consumer moves back to that move-up cycle, what we see is people improving that move-up home along the way. So what I was worried about is without people moving up, we would actually see a headwind. Instead what we saw was a continuing tailwind. So it's really kind of the Goldilocks situation."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

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Editor's note: This article was written by Nicholas Jacobino

Video transcript

JULIE HYMAN: Well, near 9-- near 7% mortgage rates are pushing many Americans to forgo moving. Instead, folks are staying put, and they're upgrading their current spaces. Trex, a composite decking manufacturer, sees robust consumer demand over the next few months in the run up to warmer weather months. With more, we're joined by Trex CEO Bryan Fairbanks. Bryan, it's good to see you. Thanks for being here.

BRYAN FAIRBANKS: Great to be back again. Thanks.

JULIE HYMAN: This is something we've talked a little bit about before kind of what you all track to in terms of housing sales or people not moving but building out their spaces. So kind of where are we in that outdoor space beautification cycle, I guess?

BRYAN FAIRBANKS: Yeah. Our business is 90% to 95% repair and remodel. It's not that tied to the new home cycle side of things. While it's important from an overall economic metric perspective, we do follow it from that perspective. But it doesn't necessarily drive the deck purchase.

What we are seeing, because there is less move up right now, is people are staying in their homes for longer. They tend to have-- already have the HOME have a low mortgage rate on that home, and have a desire to improve on what they already have instead of moving into that more expensive home. So we've seen that as a nice tailwind over the past couple of years and expect to see that continue in '24.

JOSH LIPTON: Does that tailwind, though, Bryan, does it become a headwind? I mean, does the point-- when the 30-year fixed does actually drop and housing market has some steam to it. How does that then impact the business?

BRYAN FAIRBANKS: Yeah, interestingly, when the consumer moves back to that move-up cycle, what we see is people improving that move-up home along the way. So what I was worried about is without people moving up, we would actually see a headwind. Instead, what we saw was a continuing tailwind.

So it's really kind of the Goldilocks situation. Either way, we do fine in that marketplace. So we're fine with home builders continuing to pick up from here going forward, which I expect it will do to the shortage of homes. But until then, we're fine with the way things sit.

JULIE HYMAN: I'm also curious about whether people borrow for deck projects. In other words, are they taking out a home equity line? And is that then affected by what we've been seeing with interest rates?

BRYAN FAIRBANKS: It's relatively rare. What we find is less than 10% of our customers are using those home equity lines or other forms of debt to pay for that debt. It's a relatively low cost repair and remodel project. You're looking anywhere between $15,000 to, let's say, $35,000 for a deck install. You'll be adding between 300 and say 600-square-foot to your living space of the home.

So it tends to be within the realm of the savings that our customers have. And most of it's done on a cash basis.

JOSH LIPTON: And, Bryan, when you see demand right now kind of across the country, is it pretty even or do you see pretty big differences regionally?

BRYAN FAIRBANKS: We are a very seasonal company. So the winter time, you've got less decks being built in the Northeast and Midwest. So you see more volume going to the Southern states. But the season really turns on in mid-April and then runs through pretty much the end of October. We're building inventory in the channel preparing for that seasonal surge that we're coming into. And then we expect it will be balanced at that point as we saw last year.

JULIE HYMAN: The other thing I'm curious about is price sensitivity. And this is something we've talked about before at a time when there's inflation in a lot of areas. Are you seeing that people don't have the same willingness to pay the premium price that attracts deck would cost?

BRYAN FAIRBANKS: The way we've been able to address that-- and we understood going into times of economic uncertainty, there may be that desire for trade-down. We have products at each level within our product lineup. We go anywhere from the wood conversion market, which is about two times the price of wood all the way up to our premium products, which can be five, six times the price of wood. So we've got products for any level that you want.

But at the high-end, specifically, we've launched a couple of high-end products in the last year. And you might say, why would you do that when there's economic uncertainty? We wanted to have that opportunity that if the consumer were going to trade down, they're trading down to another premium product.

So for example, our signature product, the highest end product that we have, and they decide maybe I'll just go one lower. So you move into our transcend lineage or our regular transcend product line rather than stepping down to some of the entry level deck boards. And it's been very effective for us.

JOSH LIPTON: So different price points, Bryan. I'm just I'm just interested, is there a typical Trex consumer is there a typical kind of demo for you all?

BRYAN FAIRBANKS: Tends to be a homeowner, higher family income on average, generally, out in the suburbs, so the folks here in New York City aren't our average customers. But of course, everybody out in the suburbs of this area are our customers.

JULIE HYMAN: And those different price points you mentioned, are you selling pretty-- are you seeing strong demand across the different price points?

BRYAN FAIRBANKS: We are, absolutely. With the launch of those higher-end products, it really helped keep that portfolio at the high end. But we also respect there's a large wood conversion market out there. And that wood conversion will start generally at the lower end. Those products generate good profits for us. So we're happy to bring people in and then try to move them up the spectrum.

So our enhanced basics sells it two times would. Research showed us that's what it takes to open the discussion. Once you open the discussion, we can move them up the product line.