Housing Conditions Seen Gradually Improving

The housing market is not looking at significant signs of recovery sooner than the third quarter of 2008, although some indicators reveal that home starts and sales will soon begin to pick up their sluggish pace. Among the statistics and forecasts released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

Existing-Home Sales

Temporary problems in the mortgage market are easing and are expected to release some pent-up demand, assisting sales of existing homes in 2008, the National Association of Realtors said last month. Year-to-date resales through September were running some 19% below the 6.23 million-unit level posted in September of 2006, the Washington, DC-based NAR reported. However, “the good news,” said NAR chief economist Lawrence Yun, is that mortgage availability has markedly improved, and more people are applying for safer and conforming FHA mortgage products.” Yun said it is important to place the current housing market in perspective, and that 2007 will be the fifth highest year on record for existing-home sales. 

Housing Starts

Home builders are focusing on reducing their excess inventories in the midst of continuing mortgage market travails, as housing starts and permits both continued their downward slide, according to the latest government statistics. Housing starts through September were at their slowest annual rate since March of 1993, the National Association of Home Builders reported last month. Single-family production was at an annualized 963,000-unit rate, while multi-family production plunged to a 228,000-unit rate. Building permits, an indicator of future housing activity, were also reported down.

Cabinet & Vanity Sales

Sales of kitchen cabinets and bathroom vanities declined again in September compared to the same month in 2006, 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, impacted by continued declines in housing, fell 12.5% in September compared to September of last year. Sales of stock cabinets declined 20.7% for the month, while semi-custom cabinet sales fell 3.6% and custom cabinet sales dipped 5.5%. Year-to-date sales through the first nine months of 2007 were down 12.9% from the January-September time period of 2006, the KCMA reported.

Countertop Demand

Driven by continued steady demand for kitchen and bath remodeling, demand for residential kitchen and bathroom countertops is being forecast to increase 1.3% annually, to 540 million sq. ft. in 2011. However, according to the Cleveland, OH-based industry market research firm, The Freedonia Group, demand growth will decelerate from the 5% pace of the period between 2001 and 2006, primarily due to weakness in the new single-family home market. Continued consumer preferences for larger kitchens and more bathrooms will promote growth, as will growth in the residential remodeling sector, which accounted for 70% of volume in 2006. the research firm said (see graph above right). Countertops made from engineered and natural stone will experience the strongest gains through 2011, driven in part by price declines. Laminate countertops, however, will continue to account for the largest share of countertop sales, researchers noted.

Market Analysis

House Price Dips Seen as Highly Local, With Most Markets Still in ‘Good Shape’

Washington, DC — Arizona, California, Florida, Nevada and the broader Boston and Washington, DC metro areas will be the housing markets most affected by the negative economic fallout from the subprime mortgage crisis. Also affected will be areas along the New Jersey coast, the Carolinas, and parts of the industrial Midwest.

That’s the viewpoint that was expressed by Mark Zandi, chief economist at Moody’s Economy.com, at a recent Construction Forecast Conference conducted here by the National Association of Home Builders.