Housing Remains Fragile Amid Uncertainty

The housing, residential remodeling and kitchen/bath industries, while recovering, remain fragile in the face of consumer and home-builder uncertainty, reports indicate. Among the key statistics released by government agencies, research firms and industry-related trade associations include the following:

Concerns over a growing number of factors are causing builders to pull back on production of new homes, the National Association of Home Builders said last month, after nationwide housing starts and issuance of permits for new housing construction both posted disappointing declines. The NAHB pointed at a “fragile” housing market in which credit remains tight and concerns about energy costs, interest rates and other factors persist. “While our latest member surveys showed a slight uptick in expectations for the future, there are just too many uncertainties out there for most builders and buyers to move forward with a new-home project at this time,” said David Crowe, chief economist for the Washington, DC-based NAHB. “We need to see several months of improvement in economic factors, plus concrete signs that the flow of credit to housing is improving, in order for the industry to return to a steady recovery and facilitate job growth,” Crowe noted.

Uncertainty regarding the economy continues to hamstring the housing industry, driving sales of new homes to record lows, the National Association of Home Builders reported last month (see related table at right). Sales of newly built, single-family homes – down 16.9% in February to a record-low seasonally adjusted annual rate of 250,000 units – add to the evidence that the housing recovery is hesitating along with the inconsistent progress of the economic recovery,” said David Crowe, chief economist for the Washington, DC-based NAHB. Another issue, Crowe said, “is consumer perceptions of where home values are headed.”

“An uneven recovery” for existing-home sales is anticipated by officials at the National Association of Realtors, who said last month that favorable housing conditions and a gradually improving economy “are being constrained by the twin problems” of tight credit and contract cancellations resulting from appraisals that differ from prices negotiated between buyers and sellers. “This tug and pull is causing a gradual but uneven recovery,” said Lawrence Yun, chief economist for the Washington, DC-based NAR. “We may not see gains in existing-home sales in the near term, but they’re expected to rise 5-10% this year with the economic recovery, job creation and affordability conditions providing confidence to buyers who’ve been on the sidelines,” Yun added. Notable, existing-home sales remain significantly above the cyclical low of last July, according to the NAR (see related table at right).

Sales of kitchen cabinets and bathroom vanities declined again in February, continuing their early-year slide, 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 7.3% for the month, compared to February of 2010. Sales of stock cabinets declined 10.9%, while semi-custom sales slid 3.6% and custom cabinet sales decreased 9.6%, the KCMA reported.

Market Analysis

Mobile ‘Generation X’ Home Buyers Seen Leading, Fueling Housing Recovery

Washington, DC — “Generation X” – young families and adults ages 31 to 45 – are likely to lead the home buying recovery as it gets underway, according to real estate experts who spoke at a recent educational forum co-produced by the National Association of Home Builders here.

These potential home buyers are most likely to think it’s a good time to get off the fence – and have strong opinions about the design features their new homes will include, forum participants said.

At 32% of the population of home-buying age, the Gen X population cohort isn’t the largest, but it’s the most mobile, said presenter Mollie Carmichael, principal of John Burns Real Estate Consulting in Irvine, CA. “They are in full force with their careers and they need to accommodate growing families,” she said.

In sharp contrast, even though they constitute 41% of prospective home buyers, Baby Boomers continue to wait for the market to improve, and their decisions to delay retirement also delay their decisions to downsize into a smaller home, Carmichael said.

Interestingly, although the average home size is shrinking, a majority of surveyed prospective Gen X buyers said they’d like a bigger home than the one they have. Seventy percent said that they were willing to pay $5,000 more for a green home. They also said they would pay a premium for dark wood cabinets, a separate tub and shower and a fireplace in the living room, and more preferred a Great Room over formal spaces. Gen X buyers, in addition, are looking for homes with a connection between indoor and outdoor spaces to create the perception of greater home size.

“While Gen X numbers are smaller than the birth cohorts before and after them, their numbers have been enlarged by steady immigration,” said NAHB Chief Economist David Crowe. “Gen X may wait longer than their predecessors to establish their own household or buy a home because of the recent recession impacts, but the trends are still likely to occur as they have for past generations.”