Uncertainty Seen Dampening Market

Continued economic uncertainty is having an adverse effect on a housing recovery, despite some signs that the market is poised to make gains through the end of this year. Among the key statistics and forecasts released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

The National Association of Home Builders is projecting a gradual upward trend in new-home production through the end of 2011, “though not without some bumps along the way,” as home buyers begin taking advantage of favorable affordability factors and the current buyers’ market, NAHB chief economist David Crowe said last month. Crowe’s comments were made in the wake of government reports that nationwide housing starts through mid-year were at their best pace since the beginning of the year, with single-family starts posting their best pace since November of 2010, according to the Washington, DC-based NAHB. “The latest housing production figures show broad-based gains on both the single-family side and in multi-family apartment construction,” Crowe observed.

A variety of key issues, including tight credit, low appraisals and a recent spike in contract cancellations, “are weighing on the market” for existing-home sales, which is also being hamstrung by continued economic uncertainty, the National Association of Realtors said last month. Commenting in the wake of a June slide in home resales, Lawrence Yun, chief economist for the Washington, DC-based NAR, said that the current “uneven recovery” may be resulting in hesitation among some would-be home buyers or lenders. NAR President Ron Phipps added that home sales “should be higher,” in his view. “With record high housing affordability conditions, we’d normally expect to see stronger home sales,” Phipps said. “Even with job creation below expectations, excessively tight loan standards are keeping many buyers from completing deals.”

Domestic shipments of major home appliances posted their first uptick for 2011 in June, rising 4.8% compared to June of 2010, according to the Association of Home Appliance Manufacturers. The Washington, DC-based AHAM reported last month that June appliance shipments totaled 6.74 million units, up from the 6.43 million units shipped during June of last year. Year-to-date shipments were up 0.1% compared to the January-June time span last year, AHAM said. Despite the overall monthly increase, however, declines were reported in most major product categories, including cooking, kitchen cleanup and food preservation appliances. In contrast, the greatest gains were reported in home comfort products, such as air conditioners.

Sales of kitchen cabinets and bathroom vanities declined once again in June, the Kitchen Cabinet Manufacturers Association said last month. According to the Reston, VA-based KCMA, manufacturers participating in the association’s monthly “Trend of Business” survey reported that overall cabinet sales fell 2.1% for the month, compared to June of 2010. Sales of stock cabinets decreased 1.5%, while semi-custom sales slid 2.1% and custom cabinet sales declined 5.1%, the KCMA reported. Year-to-date sales through June were down 3.7% from the January-June period of 2010.

Market Analysis

Slide in Home Improvement Spending Seen Continuing Into Early Next Year

Cambridge, MA — After showing signs of recovery, spending on home improvements is expected to remain volatile and weak over the next several quarters, according to the Leading Indicator of Remodeling Activity (LIRA) released last month by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University.

The LIRA is projecting that annual remodeling spending through the first quarter of 2012 will be down 4%, according to the Cambridge, MA-based Joint Center (see related graph at right).

“The recent slowdown in the economy has caused home improvement spending to weaken again,” said Eric Belsky, managing director of the Joint Center. “Falling consumer confidence levels have undermined interest in discretionary remodeling projects.”

According to Kermit Baker, director of the Remodeling Futures Program at the Joint Center, “what looked to be a promising upturn in home improvement spending earlier this year has begun to stall.

“Housing starts, existing-home sales and house prices have all been disappointing lately, which has dimmed prospects for home improvement spending gains this year,” Baker observed.

LIRA is designed to estimate U.S. homeowner spending on improvements for the current quarter and subsequent three quarters. The indicator, measured as an annual rate-of-change of its components, provides a short-term outlook of homeowner remodeling activity and is intended to help identify future turning points in the business cycle of the home improvement industry.