Housing Slump Seen as Worst Since World War II

The housing market, caught in the grip of the nation’s overall financial crisis, is showing no signs of recovery, with the downturn shaping up as the worst in the post-World War II era (see related graph, right). Among the statistics and forecasts released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

Housing Starts & Sales

Reflecting “profound uncertainties” tied to financial market shocks, builder confidence in the market for new single-family homes receded to a record low in October, the National Association of Home Builders reported last month. The Washington, DC-based NAHB pointed to events on Wall Street, the deterioration in job markets and weakness in consumer confidence as the key reasons behind declining builder confidence. In an ongoing effort to pare down inventories of unsold homes, builders further reduced housing production in September, with U.S. housing starts falling 6.3% to a seasonally adjusted annual rate of 817,000 units, the slowest building pace since early 1991. In contrast, sales of newly built single-family homes turned upward in September, posting a 2.7% gain to a seasonally adjusted annual rate of 464,000 units.

Existing-Home Sales

Existing-home sales increased in September – the first time since November 2005 that home sales have been above year-ago levels – according to the National Association of Realtors. Resales rose 5.5% to a seasonally adjusted annual rate of 5.18 million units in September, from a level of 4.91 million in August; they were 1.4% higher than the 5.11-million-unit pace in September 2007, the NAR said. Sales were boosted by improved affordability conditions, the NAR said. Impacted by the large supply of unsold homes, tighter lending standards and record foreclosures, prices of U.S. single-family homes plunged a record 16.6% in August from a year earlier, Standard & Poor’s reported last month. The national median existing-home price for all housing types was $191,600 in September, down 9% percent from a year ago, the NAR said. Compared to a fairly small share of foreclosures or short sales a year ago, distressed sales currently represent 35-40% of transactions, the NAR pointed out.

Residential Remodeling

The economy and housing market remain key hurdles for remodeling activity, according to the Joint Center for Housing Studies at Harvard University, which forecast last month that homeowner improvement spending between this past June and the second quarter of next year will be 12% less than it was during the same time period a year earlier. According to Joint Center Chief Economist Kermit Baker, the nation may be nearing a cyclical low point for home improvement activity. “Existing-home sales appear to be stabilizing and interest rates for financing home improvements are favorable,” said Baker, noting, however, other market indicators “continue to deteriorate.”

Cabinet & Vanity Sales

Sales of cabinets and vanities fell sharply in September compared to September 2007, 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 overall cabinet sales declined 18.5% in September compared to September of 2007. Sales of stock cabinets fell 15.3% while semi-custom cabinet sales dropped 21.0% and custom cabinet sales fell 21.4%, the KCMA reported. Year-to-date sales through the first nine months of 2008 were down 17.3% compared to the January-September period of 2007, the KCMA added.

Market Analysis

Housing Downturn Seen Easing in 2009, Amid Uncertainties Termed ‘Unprecedented’

Washington, DC — Congress should consider providing further “sorely needed” economic stimulus to encourage homeownership and limit foreclosures in order to pull the U.S. economy out of recession, the chief economist for the National Association of Home Builders said last month.

Speaking at the NAHB’s annual Fall Construction Forecast Conference, David Seiders forecast that the steep decline in sales of new single-family homes should be coming to an end in early 2009, setting the stage for “tepid” improvement in new residential construction later in the year. However, he warned, outcome has grown increasingly uncertain in light of the turmoil that has gripped world financial markets.

“Things are a lot worse than any of us had anticipated six months ago,” Seiders said, noting the nation’s housing market – which is the root cause of the collapse in confidence among lenders – has continued to spiral downward.
“Risks are piling up on the down side,” he said. “These are tough times, no question.”

While remaining reasonably optimistic that a housing recovery is beginning to take shape, “the uncertainties out there are unprecedented,” said Seiders, adding there is a growing risk the current housing contraction could get even worse.

Citing an increase in pent-up demand for housing, he added declines in home prices and increases in personal income have helped to restore housing affordability to the more normal levels that existed prior to the peak of the housing boom. However, even as the demand for housing begins to grow, housing production will be constrained by tighter credit for the loans builders and developers need to break ground on new residential projects, he said.

NAHB is forecasting 936,000 total housing starts for 2008, a 30.2% decline from the 1.34 million homes produced last year. Starts in 2009 are projected to slide 16.2% further, to 784,000 units, and 2010 would bring production up to the one million level.


Key Stocks Tumble Amid Market Volatility

Continuing volatility on Wall Street, coupled with a sagging economy and sliding consumer confidence, ravaged stocks – including issues tied to the kitchen and bath market – in October.

The index of 52 key stocks of building products manufacturers, distributors, retailers, home builders and e-commerce enterprises – as tracked in Kitchen & Bath Design News’ exclusive monthly Stock Index, tumbled 252.24 points, or 13.25%, to close the trading period from Oct. 5 through Nov. 5 at 1651.81. The decline was minor compared to that of the Dow Jones Industrial Average, which plunged 1186.11 points, or 11.49%, ending the month-long trading period at 9139.27, while the Nasdaq Composite Index declined 265.75 points, or 13.65%, to close at 1681.64 (see Market Diary, below). Declining stocks outpaced advancers by a margin of 16-1 on the KBDN Index.

Top gainers for the period included Hydromaid and Sherwin-Williams. Whirlpool Corp., Temple-Inland and Weyerhaeuser were among the biggest losers.