Down But Not Out

The recent slowdown in home sales also means owners are staying in their homes longer, thereby changing the makeup of home improvement spending. “Recent buyers often focus on updating their kitchens and baths as well as adding rooms or making structural changes,” remarks Amal Bendimerad, a research analyst at the Joint Center.

The numbers seem to support this. At press time, NAHB noted that remodeling activity held up well during the third quarter of 2007 according to its Remodeling Market Index (RMI).

“Buoyed by continuing strong demand for minor additions and alterations, the remodeling market is expected to end the year in pretty good shape,” says NAHB Remodelers Chairman Mike Nagel, CGR, CAPS, a remodeler from Chicago. “Though down a bit from the previous quarter, the remodeling market is not experiencing the dip in production and sales being seen by the industry’s new home building sector.”

Challenges Ahead

Despite the continued resiliency of the kitchen and bath sector, however, the current housing slump has clearly had a negative impact on the market, specifically in the area of product shipments.

“Up until now, we have only seen a fraction of new housing’s impact,” notes Dick Titus, executive v.p. of the Kitchen Cabinets Manufacturers Association.

The Reston, VA-based KCMA had reported some 120 consecutive months of cabinet industry growth through November, 2006. Since then, however, KCMA members have posted a series of monthly declines that stretched into last October, the last month for which statistics were available.

“We are looking at a decline of 12-13%,” Titus says of 2007. “Many homeowners are holding back until they’re confident that the economy is improving.”

The current cabinet industry pattern will carry on through 2008, according to Titus, who predicts that “the industry will be, at best, flat.”

“It will be a slow climb back,” Titus says. “We’ll likely see recovery in 2009, as projected.”

Even during this challenging market, kitchens and baths are outperforming the rest of the building industry, according to Ed Pell, manager of market research for the National Kitchen & Bath Association.

“[Kitchens and baths were the] one bright spot in the building industry,” says Pell. “They did well overall in 2007 and will likely do about the same or flatten in 2008. But the fallout [from the current market conditions] will be anybody’s guess.”
According to Pell, the number

of kitchen remodeling jobs rose 1.7%, to 7.6 million units, in 2007. Total spending, however, was down, Pell notes.

“While just as many people remodeled, they ended up spending less due to market conditions,” he explains. This makes it more important than ever for kitchen and bath dealers and designers to sell upgrades that bring real value to the project, as price-conscious consumers may be more selective about what upgrades they invest in over the coming year, he adds.

Because the function of the kitchen has evolved dramatically over the past two decades, dealers and designers should stress to their customers how important it is to make the right choices when remodeling, he states.

“Twenty years ago, the kitchen had a different function – you basically used the kitchen to reheat and defrost meals. Today, cocooning is still going strong,” Pell notes. “People are spending more time at home. The interior of house is evolving, with the kitchen taking over dining rooms and living rooms. The kitchen is the family room.”

The same cannot be said about bathroom remodeling, which is, according to Pell, driven more by necessity. There are two drivers in bathroom remodeling – water damage and the two-income family. “When there is water damage, a bathroom remodel needs to be done right away,” Pell explains. “And a two-income family usually has two adults needing to get ready at the same time. Most bathrooms were designed as one small room for one person at a time.”

Bath remodels rose 5.3% in 2007 over 2006, with 10.9 million jobs in all, according to Pell. Spending was up 3.9%, he says.

Projections for 2008 were not available from the NKBA as of press time, but kitchen and bath activity is going to be holding steady, depending on when housing pulls out of its slump, Pell believes.