From the Editor: Rocky Mountain High Inflation

If you're like me, when you pack your suitcase for Denver for the CEDIA Expo this month, you might take a moment to dwell on your travel costs.

A few weeks ago while I was packing for a business trip to the West Coast, I discovered a plane-ticket receipt hidden in one of the seldom-used interior pockets. The receipt was for my air flight to the same show from two years ago.

Now I know how people feel when they open up time capsules, because my 2004 flight cost $204 while I was holding a $382 ticket for this year's flight ... an 87 percent increase!

It reminded me of the old stories from my grandfather about 15-cent loaves of bread, except those were tales from the Depression, not two years ago. Inflation is back. For integrators, it means rising costs, but even more ominous, it might drive interest up so high that the housing market will tank.

As I write this, the average price of gasoline in the United States hit an all-time high of $3.01 per gallon and copper has been selling for $4,000 per ton (more than four times the cost a year ago). That translates to nearly $3.50 a pound. Both of those commodities have a direct effect on integrators. Those costs, along with rising wages, insurance and other factors, can (and should) be covered by increasing installation and service rates. I know that's easier said than done, especially if you have low-cost merchants in your area, but nonetheless, it's doable.

However, it's inflation's effect on the housing mortgage market that has me worried. To date, the government's only salve for slowing inflation is to apply a strong dose of higher interest rates. That calms inflation but stymies housing growth because it reduces affordability. It's a Catch 22, but recent history shows that the Fed prefers higher interest rates versus runaway inflation.

So what should an integrator do about it? Besides the obvious self-examination of your business to cut waste and the aforementioned increase in your rates, I believe the key will be diversifying the markets you serve. This is especially critical if you have been devoted to the new production home market for the past 10 years.

So far, the uneasiness in the housing market is regional in nature. The National Association of Home Builders is reporting drastic drops in housing starts in Louisiana, Illinois, Massachusetts, Michigan and Ohio. Conversely, the market in Idaho, North Carolina, Oklahoma, Washington and Wyoming is expected to stay strong.

To insulate your company from higher interest rates and high inflation, your focus should turn to existing home or light commercial markets. The remodeling market will be the growth segment for custom integrators for the next few years. Go out now and form networking relationships with drywallers, cabinetmakers, electricians, painters and interior designers. Those relationships might be the keys to future success.

So as you drink a $10 beer in your $200 per night hotel room at the CEDIA Expo this year, make sure to check out educational sessions focusing on installation and sales techniques for existing homes. It might pay off.

What are you doing to address the existing-home market?