Housing Crunch Continues to Impact Market

The slumping housing market continues to have a major impact on housing starts, home sales, remodeling and product shipments, although predictions are for the market to gradually improve by year’s end. Among the statistics and forecasts released in recent weeks were the following:

Housing Starts

The latest housing forecast released by the National Association of Home Builders foresees total housing starts falling to 948,000 units in 2008, down from last year’s 1.34 million units and well off the high water mark of 2.1 million units in 2005.

“The demand for new homes still is quite weak, the overhang of vacant housing units on the market is at record proportions, consumer sentiment continues to fall and the economy has been losing jobs since the end of last year,” said David Seiders, chief economist for the Washington, DC-based NAHB. “The fundamentals point to further production deterioration over the balance of this year.” The downswing in the single-family housing market deepened in April to a seasonally adjusted annual rate of 692,000 units, the lowest monthly production rate since January 1991 and 42.2% below April 2007, according to the NAHB, which said it expects housing starts to rise to 1.05 million units in 2009, as a recovery gradually takes hold.

Existing-Home Sales

Existing-home sales and prices throughout most of the country are “poised for improvement” in the second half of 2008, with a gradual recovery varying by market, according to Lawrence Yun, chief economist for the National Association of Realtors.

According to Yun, middle-America cities that performed evenly over the past few years are likely to experience home price gains in the 20-30% range over the next five years, while markets like Miami, Las Vegas and Phoenix could see prices rise as much as 50% during that time period. Yun blamed most of the softening of the housing market over the last year on the “subprime mess.” Now that the subprime market has dried up, and loans insured by the Federal Housing Administration and those purchased by Fannie Mae and Freddie Mac are making a comeback, housing markets will strengthen and prices are likely to begin a steady uptick in the coming months, Yun said. Existing-home sales through the first four months of 2008 were 17.5% below levels of a year ago, the Washington, DC-based NAR reported.

Cabinet & Vanity Sales

Sales of kitchen cabinets and bathroom vanities declined again in April 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 overall cabinet sales slid 9.5% in April compared to April of 2007. Sales of stock cabinets plunged 21.2%, while semi-custom cabinet sales declined 0.7% and custom cabinet sales fell 3.7%, the KCMA reported. Year-to-date sales through the first four months of 2008 were down 10.3% compared to the January-April period of 2007, the KCMA added.

Appliance Shipments

May shipments of major home appliances declined 13.4% to 6.5 million units, down from 7.6 million units in May 2007, according to the latest figures available from the Association of Home Appliance Manufacturers. The Washington, DC-based AHAM reported that the hardest-hit product category during the appliance downturn has been cooking, with year-to-date shipments off in gas and electric ranges, ovens and surface cooking units.

Market Analysis

Weak Economy, Consumer Confidence Seen Hindering Remodeling Spending

Cambridge, MA — Falling consumer confidence and a weakening economy are inhibiting remodeling spending, with weakness expected to continue through this year, according to the latest statistics released by the Joint Center for Housing Studies at Harvard University.

The Joint Center’s Leading Indicator for Remodeling Activity (LIRA), which measures past and future remodeling activity, reveals that homeowner spending for home improvement activity will continue to decline, falling by an annual rate of 4.8% through the end of 2008 (see related graph, on the right).

Owner remodeling spending began to soften in late 2006, and has shown annual declines since mid-2007, according to Joint Center officials, who added that most remodeling indicators – including contractor payrolls, existing-home sales and remodeler business expectations – remain negative.

“Spending on home improvements continues to be sluggish, as homeowners respond to falling home prices,” commented Joint Center director Nicolas Retsinas, adding that the fall-off in pending home sales suggests “a long and slow recovery.”

“It looks unlikely that we will see any improvement in the remodeling market until 2009,” noted Kermit Baker, director of the Remodeling Futures Program at the Joint Center. “Currently, the second half of this year is shaping up to be weaker than the first half.”

Stockwatch

Stocks Gain Despite Volatile Market

Stocks connected with the kitchen and bath industry posted a surprisingly strong performance in May, even in the face of dwindling consumer confidence, oil-price hikes and unnerving volatility on Wall Street.

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 – rose 11.78 points, or 0.49%, to close the trading period from May 5 through June 5 at 2404.19. In sharp contrast, the Dow Jones Industrial Average plunged 365.09 points, or 2.81%, ending the month-long trading period at 12604.45, while the Nasdaq Composite Index rose 85.82 points, or 3.48%, to close at 2549.94 (see Market Diary, below). Declining stocks outpaced advancers by a margin of nearly 3 to 1.

Top gainers for the period included American Woodmark and Temple-Inland. Home Builders Hovnanian Enterprises, Beazer Homes and Ryland Group were among the greatest losers.

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