Market Malaise Lingers With Housing Slump

The current slump in housing continues to have a major impact on the kitchen and bath market, slowing demand and purchases of key products, including cabinets and appliances, the latest industry barometers reveal. Among the statistics and forecasts released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

New-Home Sales

Home builders continue to scale back production in an effort to contain inventories amidst ongoing market factors, “keeping many potential home buyers on the fence,” the president of the National Association of Home Builders said last month. According to NAHB president Sandy Dunn, builders are “doing what we can to restore balance to the supply-demand equation, but we need [government officials] to take action on several fronts if there’s any hope of rebuilding consumer confidence and jump-starting the economy.” The NAHB’s latest surveys “reveal that many prospective buyers are looking into a home purchase, but are unwilling or unable to make their move with conditions in the overall economy and financing arena what they are,” the association said. Single-family housing starts continued on a downward trajectory in February. At the same time, sales of new single-family homes were running nearly 30% below a year earlier and 58% below the market’s peak in July 2005.

Exisitng-Home Sales

The recent uptick in sales of existing homes is an “encouraging sign that the [housing] market is stabilizing,” the chief economist for the National Association of Realtors said last month. According to Lawrence Yun of the Washington, DC-based NAR, “we’re not expecting a notable gain in existing-home sales until the second half of this year, but the improvement is another sign that the market is stabilizing. “Buyers taking advantage of higher loan limits for mortgages will unleash some pent-up demand,” Yun said, noting that “prices in many markets should go positive later this year,” as inventories of unsold homes are drawn down. Existing-home sales rose 2.9% in February, to a seasonally adjusted annual rate of 5.03 million, but remained 23.8% below the 6.60 million-unit level posted in February 2007.

Plumbing Product Demand

U.S. demand for plumbing fixtures and fittings – fueled largely by increasing applications in residential remodeling, including trends toward larger bathrooms and kitchens – is expected to rise 2.7% annually through 2011, to a total market of $11.4 billion, according to a study by a leading industry research firm (see related table, right). The study, conducted by the Cleveland, OH-based Freedonia Group, forecasted that demand for plumbing fixtures will grow 2.4% per year through 2011, to $6.15 billion. Consumer interest in higher-end fixtures will fuel demand, along with product developments aimed at adding value, the research firm said. Demand for plumbing fittings was forecasted to rise 2.9% per year through 2011, to $5.25 billion, with advances supported by product developments, the Freedonia Group said. Consumer interest in higher-end amenities will also bolster value growth, researchers added.

Cabinet & Vanity Sales

Sales of kitchen cabinets and bathroom vanities fell slightly in February 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 cabinets declined 3.7% in February compared to February of 2007. Sales of stock cabinets fell 15%, while semi-custom cabinet sales slid 8.3% and custom cabinet sales fell 2.3%, the KCMA reported. Year-to-date sales through the first two months of 2008 were off 7.4% compared to the January-February period of 2007, the KCMA added.

Market Analysis

Energy Efficiency, Quest for Practicality Seen Driving Major Appliance Trends

Port Washington, NY — New technology and energy efficiency are driving growth in major home appliances, even as a soft economy fuels a trend toward more practical, lower-ticket consumer purchases.

That’s the conclusion of The NPD Group, a leading provider of consumer and retail information, which noted that major appliance sales were mixed in 2007, with dishwashers and ranges among the few categories posting solid dollar growth.

“Today’s time-starved consumers are looking for ways to get time back into their lives to spend on leisure activities,” said Mark Delaney, a spokesman for the Port Washington, NY-based NPD.

“Appliances that deliver performance while demonstrating concern for the environment, either through energy savings or water conservation, will outperform [others],” he said.

Delaney pointed to the recent International Builders’ Show and the uncertain economic climate as reasons for NPD’s forecast that higher-end major appliance models “will likely take the biggest hit.

“Many consumers are scaling back on these purchases, moving toward more practical purchasing,” said Delaney, adding that recent declines in consumer confidence will likely “drive a more cautious approach as consumers are still looking for quality, but focusing more on price and energy savings and less on upgrading to get the extra ‘bells and whistles’.

“Manufacturers and retailers may need to re-examine their assortment over the next year or so, to better align with what the consumer is willing to spend,” Delaney concluded.

Stockwatch

Stocks Gains Despite Housing Slump

The lingering housing market malaise did nothing to dampen sentiment on Wall Street in March, as stocks – including those connected to the kitchen and bath industry – posted solid gains for the month.

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 – gained 45.70 points, or 1.85%, to close the trading period from March 5 through April 4 at 2512.78. In similar fashion, the Dow Jones Industrial Average surged 354.43 points, or 2.89%, ending the month-long trading period at 12609.42, while the Nasdaq Composite Index rose 98.17 points, or 4.32%, to close at 2370.98 (see Market Diary, below). Advancing stocks outpaced decliners by a 6-1 margin.

Top gainers for the period included Fortune Brands and home builders Beazer Homes and Hovnanian Enterprises, while International Paper and Wolseley PLC were among the greatest losers.

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