Signs of ‘Transition’ Hint at Eventual Turnaround

The housing market remained status quo last month, although there were some signs that the market may have entered a period of transition leading to a projected recovery. Among the statistics and forecasts released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

Residential Remodeling

Residential remodeling activity remained sluggish during the second quarter of 2008, according to the latest in a series of Remodeling Market Indexes issued by the National Association of Home Builders. The RMI, released last month, indicated that the remodeling market remained essentially the same from April-June. The RMI, which measures remodeler perceptions of market demand for current and future residential remodeling projects, has been running below 50 since the final quarter of 2005, implying shrinkage of remodeling expenditures since that time (see related graph, right).

“Remodelers are experiencing slower activity in markets nationwide, particularly for major improvements to owner-occupied housing,” said NAHB Remodelers Chairman Lonny Rutherford. The NAHB expects remodeling to remain flat in 2009, followed by strong growth due to home maintenance needs.

Housing Starts & Sales

Anticipating positive impacts of newly enacted housing stimulus legislation, single-family home builders registered some improvement in their outlook for home sales in the next six months, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for August, released last month. The Housing and Economic Recovery Act of 2008, signed into law by President Bush on July 30, implemented several reforms to the housing finance system and provided aid to troubled homeowners facing foreclosure.

While the overall measure of builder confidence remains at a record low, the latest builder confidence data “may be an indication that we are nearing the bottom of the long downswing in new-home sales,” said NAHB Chief Economist David Seiders. “Our current forecast shows stabilization of sales during the second half of this year, followed by solid recovery in 2009 and beyond.”

Existing-Home Sales

“Some improvement” is projected for existing-home sales in the months ahead, with broader gains seen by the fourth quarter as buyers take advantage of new provisions provided through the recently passed housing stimulus bill, according to the National Association of Realtors. Lawrence Yun, chief economist for the Washington, DC-based NAR, said that current data points to a housing market “in transition.” Yun added, “With a tax credit now available to first-time home buyers, increases in home sales could be sustained, with the momentum carrying into 2009.”

Cabinet & Vanity Sales

Sales of kitchen cabinets and bathroom vanities, continuing to be impacted by the steep housing slump, declined sharply in July compared to the same month a year earlier, 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 18.2% in July compared to July of 2007. Sales of stock cabinets declined 12.0%, while semi-custom cabinet sales dipped 22.6% and custom cabinet sales fell 24.4%. Year-to-date sales through the first seven months of 2008 were down 15.8% compared to the same period in 2007, the KCMA added.

Market Analysis

Home Remodeling Activity Reported Varying Widely by Major Metro Market

Cambridge, MA — While residential remodeling activity is sluggish, with weakness expected to last through the balance of this year, markets vary considerably based on local economic conditions and other factors.

That’s the finding of the Joint Center for Housing Studies of Harvard University, which concluded in a recent report on the nation’s housing market that remodeling markets with the smallest declines are expected to be concentrated in the industrial Midwest, Texas and the Pacific Northwest, while markets with the greatest declines are likely to be in California, Florida and the Southwest.