The Bad & the Ugly

HACKETTSTOWN, NJ — There aren’t many bright spots in either the overall economy or a housing market that’s expected to be down again in 2008, but the kitchen and bath industry “is likely to remain in relatively good shape compared to other segments of the construction industry.”

That’s the word from the National Kitchen & Bath Association, which last month issued its annual Kitchen/Bath Industry Outlook, containing two distinctly different forecasts for 2008 – an optimistic, or “soft landing,” and a pessimistic, or “hard landing.”

In general, the kitchen and bath market will continue in 2008 to be supported by a strong foundation for resiliency, if not growth, according to Ed Pell, manager of market research for the Hackettstown, NJ-based NKBA.

“Remodeling is still strong, making up the bulk of the market,” Pell observes. “Dipping home values and prices act as a spur to kitchen and bath remodeling, since consumers trying to sell [tend to] improve their homes in the hope of attracting buyers, and homeowners staying put improve their homes for an enhanced lifestyle and increased home value.”

Pell also points out that, in terms of demographics, the trailing edge of the baby boom generation is still at prime remodeling age, while echo boomers are beginning to form households. In addition, he notes that “cocooning” – the phenomenon that has people retreating into their homes – remains a major market factor and is likely to intensify as the economy worsens, spurring the desire for a better kitchen and bathroom.

“Kitchen and bath products and design options have more visibility than ever, thanks to the media and the Internet – and that visibility fuels consumer desire,” Pell explains. “And helping drive bath remodeling, especially, is the continuing decline of one-income households, which cause two [or more] people to have to share a bathroom at the same time.”

‘Soft’ or ‘Hard’ Landings

With home values falling, home equity withdrawal declining, mortgage delinquencies on the rise, housing starts down and consumer confidence shaky at best, it will almost certainly be a down year for the kitchen and bath industry, the NKBA forecast predicts.

How steep the decline will be, however, remains up in the air.

If inflation remains low, if increases in the unemployment rate remain modest and if the ripple effect of the mortgage crisis remains relatively contained, remodeling should see only a minor disruption – and the total kitchen and bath market should see only a small downturn, according to the NKBA.

Under this “soft landing” scenario, the NKBA sees housing starts holding at the National Association of Home Builders’ forecasted 1.081-million-unit mark, with 796,000 single-family starts and 285,000 multi-family starts.

According to Pell, that would mean 1.081 million kitchens in new construction for 2008, a drop of more than 20% from 2007, with total kitchen spending by builders at about $22.7 billion, down 25%. Under that scenario, remodeled kitchens would slump just 2%, to 7.4 million units, while kitchen remodeling spending would total $87.6 billion, down about 9% from last year.

That would peg the total kitchen market, in a soft landing, at 8.5 million kitchens, down 5% year-over-year, at a total expenditure of $110.3 billion, a 13% decline.

The “soft landing” bathroom scenario sees baths in new construction down 21%, to 3.3 million units, with new construction bath spending by builders down 27%, to about $16.9 billion. Remodeled baths would be up roughly 2%, to just under 11.1 million units, although remodeled bath spending would dip 4% to about $67.4 billion.

The total bath market, under that scenario, would amount to 14.3 million baths, down 4% from 2007, with spending in the $84.3 billion range, about a 10% drop.

A “hard landing” presents an entirely different set of circum-stances – and far different results.

Under that pessimistic scenario, the NKBA sees housing starts slumping to below 1.1 million units, compounded by a serious national recession. In this projection, there would be 1.050 million new construction kitchens, a 23% drop, with spending on those kitchens by builders down 28%, to $22.1 billion. New construction baths would be down 21%, to 3.25 million units, with spending at $16.9 billion, a 27% drop.

A hard landing, according to the NKBA, would also mean that kitchen remodeling would decline 5%, to 7.2 million kitchens, while bath remodeling would be down 4%, to 10.4 million units. Kitchen remodeling spending, under those circumstances, would dip 12%, to $84.7 billion, while bath remodeling spending would slip 8% to $64.9 billion, according to the NKBA.
A hard landing scenario would put the total kitchen market at 8.2 million units, down 8% from last year, with total kitchen expenditures at $106.7 billion. Total baths would reach almost 13.7 million units, down nearly 9%, and total bath spending would drop 12% to $81.8 billion.

Results from 2007

How did the kitchen and bath market perform in 2007?

New construction figures were horrendous. New construction kitchens declined by 26%, to 1.36 million units, with spending by builders on those units at $30.4 billion, down 29%, according to the NKBA. In similar fashion, new construction bathrooms fell 21% last year from 2006 levels, to 4.12 million units at a direct builder investment of $23.1 billion, a 17% drop. There were 1.3 million master baths, 2.3 million other full baths and 531,000 powder rooms in new construction last year, according to the NKBA.

It was a different story for kitchen and bath remodeling.

According to NKBA, consumers continued to remodel their kitchens in large numbers, and remodeling jobs increased 1.7% over 2006 levels, to almost 7.6 million units.

However, spending on kitchen remodeling dropped 24% from the previous year, to $96.2 billion, the trade association reports.

“Consumers seemed to spend less across the board,” Pell says.

NKBA statistics reveal that luxury jobs were down 40% and luxury spending ($50,000 or more) was down 46%. In 2006, 7% of total kitchen remodeling jobs were in the luxury category, but last year just 4% were. Median jobs ($20,000-$49,999) were down 33% and median spending was down 30%. Just under 10% of the total number of jobs were in the median price bracket last year, compared to 14% in 2006.

By contrast, fundamental jobs (under $20,000) were up 12%, and fundamental spending was up 10%. Jobs in the fundamental bracket made up 86% of all jobs last year, compared to 79% of all jobs in 2006.

“It appears the kitchen remodeling market shifted lower in price and that consumers pulled in their spending, opting for less lavish jobs,” Pell says.

Although there was some indication that consumers pulled back slightly on bath remodeling spending, 2007 was a very good year for bath remodeling. Jobs increased 5% to nearly 10.9 million units, and bath remodeling spending was up 3.9% to $70.2 billion, NKBA said.

The number of luxury bath remodels (on which more than $20,000 was spent) dipped about 10% to just under 557,000 units last year, but spending on luxury jobs jumped 36% over 2006 levels to $30.2 billion.

Median bath remodeling jobs in 2007 (priced between $5,000-$19,999) dipped 3.9% from the year before, to just under 2.5 million units. Spending on median bath remodeling was up about 13% over 2006 levels to approximately $23.5 billion.
Last year saw a 10% increase in fundamental bath remodeling jobs (under $5,000) to over 7.8 million units. Spending on those jobs, however, dipped 33% from 2006 levels to just under $16.5 billion.

The number of master bathrooms remodeled last year was up 5% to just under 5.4 million units. There were 3.8 million other full baths remodeled in 2007, down about 1% from 2006, and about 1.7 million powder rooms remodeled, up 24% from the year before.

Other findings in the NKBA’s forecast were as follows:

  • The number of consumers who claimed to have designed their kitchen remodeling jobs themselves increased from 74% in 2006 to nearly 80% in 2007. “How much of this number is real do-it-yourself design work is open to question,” Pell states. “It’s also unknown how many jobs were strict replacement jobs, in which new product went into space occupied by existing product and there was no actual redesign.”
  • Do-it-yourself installation activity remains high. Some 48% of last year’s kitchen remodeling households reported that all of the installation was performed by the consumer or family members, up 3% from 2006 levels. In all, three out of every four kitchen remodeling jobs had some or all of the installation performed by amateurs, while 52% had some or all performed by professionals, according to the NKBA.
  • Interestingly, satisfaction levels with the finished kitchen product increased in 2007. Some 97% of 2007 kitchen remodeling households say they are somewhat or extremely satisfied with their resulting project, up from 95% in 2006. Just 1% declared themselves somewhat or extremely dissatisfied, down from nearly 3% who were dissatisfied in 2006.
  • Some 81% of consumers who remodeled a bathroom in 2007 claimed to have designed the project themselves, down from 87% who did so in 2006. To what extent this represents real do-it-yourself design work, as opposed to memory revised by desire, is open to question. It might also be noted that many bath remodeling jobs were mostly replacement jobs, with new product plugged in where old product once was.
  • Consumers said that some 53% of jobs were installed entirely by themselves or family members in 2007, down from 59% last year.
  • Satisfaction with finished bathroom projects was stratospheric. Some 97% of bath remodeling customers said they were somewhat or extremely satisfied with the results, while less than 1% said they were somewhat or extremely dissatisfied.

The NKBA’s Kitchen/Bath Industry Outlook 2008 is available by calling NKBA at (800) 843-6522. Kitchen-only and bath-only editions are available at a discount, as are builder-only, dealer-only and multi-branch retailer-only versions.