Remodeling Continues During Housing Slump

The housing market continues to work its way through its unexpectedly steep, 18-month slump, while the residential remodeling sector – impacted by the housing decline – is nevertheless faring better than new construction, according to the latest economic and industry indicators. Among the statistics and forecasts released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

Housing Starts

Single-family builders are reporting that improving affordability and a large selection of homes on the market are helping draw more potential buyers to model homes, the National Association of Home Builders said last month. However, until that translates to higher sales and lower inventories, “builders are keeping the brakes on new construction,” observed David Seiders, chief economist for the Washington, DC-based NAHB. Single-family housing starts declined for a tenth consecutive month in January, to their lowest rate since January of 1991. Single-family permit issuance was also at its lowest since January of 1991, the NAHB said, adding that overall permit issuance, which can be an indicator of future building activity, also declined in January to its lowest level since November of 1991.

Existing-Home Sales

The latest figures for existing-home sales reveal that “many potential buyers remain on the sidelines,” awaiting further cuts in interest rates and the credit crunch to filter its way out of the market, the National Association of Realtors said last month. “Subprime loans and other risky mortgage products have virtually disappeared from the marketplace, and over the past five months, this has been reflected in soft but fairly stable home sales,” said Lawrence Yun, chief economist for the Washington, DC-based NAR. Existing-home sales slipped in January and were 23.4% below the pace posted in January 2007, according to the NAR.

“As the increased limits for FHA and conventional loans are implemented, more buyers will have access to safer FHA loans and lower interest rate loans, which could lead to higher home sales later in the year,” Yun observed.

Residential Remodeling Activity

Remodeling activity showed pressure from the housing downturn during the fourth quarter of 2007, with the indexes of both current market conditions and future expectations declining from previous levels, according to the National Association of Home Builders. Nevertheless, while housing starts have fallen sharply from their peak in early 2006, the remodeling market has exhibited a much smaller decline, according to the latest in a quarterly series of NAHB Remodeling Market Indexes.

“While the housing downturn has impacted the remodeling market to some degree, it is on a much smaller scale than the rest of the market,” said NAHB Remodelers Chairman Mike Nagel. According to the NAHB, 43% of surveyed remodelers reported an increase in billing in 2007, while 25% reported that billing stayed at the same level as in 2006. With respect to 2008, 51% predicted a dollar-volume increase and 27% forecasted maintaining the same volume for the entire year. “These results suggest that while remodelers see slower conditions for the short term, the long-term prospects look good, with a remodeling market recovery by the end of 2008,” Nagel said.

Cabinet & Vanity Sales

Sales of kitchen cabinets and bath vanities declined in January 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 11.3% in January compared to January of 2007. Sales of stock cabinets declined 20.1%, while semi-custom cabinet sales slid 0.2% and custom cabinet sales fell 12.3%, the KCMA reported.

Market Analysis

Kitchen & Bath Sector Faring Best Through Current Housing Downturn, AIA Contends