Slow Road to Recovery

For kitchen and bath design professionals, the past 24 months have certainly been a test. Ongoing news reports of foreclosures, rising unemployment rates, decreased consumer confidence and plummeting home prices have created a climate of carefully controlled purse strings, with product shipments down significantly and a great deal of discretionary spending on hold.

As a result, kitchen/bath dealers and designers have seen markedly decreased traffic, fewer leads, longer lead-to-close times, smaller-ticket jobs – often at lower profit margins – and greater competition for customers.

However, there are now some encouraging signs that not only may the worst be over, but that there’s legitimate reason for long-term optimism (see Editorial).

Total housing starts, which descended to historic lows in 2009, are expected to post a modest increase in this year due to a rise in the production of single-family units. While a sustained recovery for housing is expected to accelerate into 2011, as illustrated by the graphic above, the road back to 2006 levels will be long, based on the steepness of the 2007-’09 decline.

According to Don Sciolaro, CEO of the Hackettstown, NJ-based National Kitchen & Bath Association (NKBA), economic indicators and many top analysts contend “that the recession is over – that most markets already bottomed out and are beginning a slow recovery. So, the question now isn’t whether things will get worse,” he says, “but how quickly they’ll recover.”

The extension of the $8,000 first-time home buyer tax credit, signed into law recently, is expected to have a substantial stimulative effect on home sales, and should assist the nation’s housing market on the road to recovery, according to the Washington, DC-based National Association of Home Builders.

The home-buyer incentive extension should boost both housing production and home sales in 2010, according to David Crowe, chief economist for the NAHB. Crowe notes that the latest permit patterns indicate that builders “are preparing for the possibility of more favorable housing market conditions in the future.”

Aided by the home-buyer tax credit, the outlook for housing and the economy appears headed “for a sustainable recovery,” according to the National Association of Realtors (NAR). Lawrence Yun, chief economist for the Washington, DC-based NAR, projects that existing-home sales – a key predictor for residential remodeling – will rise 10.8% in 2010, to 5.71 million units, up from 5.1 million units in 2009. According to NAHB, new-home sales are projected to increase to 532,000 units, from an estimated 393,000 last year, while housing starts should grow to 695,000 units in 2010 – up from 559,000 units last year (see related Barometers and Consumer Buying Trends, Pages 8-9).

According to Dick Titus, executive v.p. for the Reston, VA-based Kitchen Cabinet Manufacturers Association (KCMA), many economists believe that with the economy growing at a 3.5% rate in the third quarter of 2009, the apparent bottoming-out of home prices and increased stability in some key financial markets, economic recovery in the U.S. really began this past summer. However, Titus believes that unemployment and inflation containment will remain key issues.

“On the encouraging side,” he says, “home prices have begun to move up in some markets and sales appear to be growing in many areas. The inventory of unsold homes has decreased, but job layoffs and foreclosures remain a problem for housing.”

According to Titus, who reported a 30% year-over-year decline in cabinet shipments through the first 10 months of 2009, the recovery is expected to advance slowly at a pace well short of “good times.”

“Overall, the outlook for housing, consumer spending and job creation all remain soft for the foreseeable future,” he says, although he is quick to point out that “a slow recovery is still better than continued economic decline.”