Mortgage Woes Fuel Housing Slump

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The nation’s ongoing housing slump continues to impact market conditions in the kitchen and bath sector, although residential remodeling activity remains relatively constant, 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:

Housing Starts

Declining housing starts and building permits clearly reflect “deepening problems in the mortgage market” that are delaying a housing recovery and adding significant uncertainty to forecasts, the National Association of Home Builders said. The latest government figures – indicating that home starts were at their lowest level since January of 1997 – “are right in line with NAHB’s latest housing forecast and with the eroding builder confidence highlighted by recent surveys,” commented NAHB Chief Economist David Seiders. Mortgage market problems, which erupted earlier this year in the subprime sector and now have spilled over into other components of housing finance, “are deepening the housing downswing,” Seiders noted. “NAHB is currently expecting new-home sales to stabilize by the end of this year and housing starts to stabilize by the middle of 2008,” Seiders said.

Existing-Home Sales

The market for existing-home sales is “holding on” in the face of mortgage disruptions, although current resales are about 9% below the level that was posted at the same time in 2006, the National Association of Realtors said last month. “Home sales probably would be rising in the absence of [current] mortgage liquidity issues,” said Lawrence Yun, NAR senior economist.

Yun added that the recent rise in sales and prices in the Northeast “is promising because this was the first region that underwent sales and price weakness after the boom. Now, it appears that it will be the first region to climb back, indicating that other regions could follow a similar path.”

Residential Remodeling

Despite weakness in house prices, growth in home improvement expenditures is expected to hold steady in the low single-digit range, according to the Leading Indicator for Remodeling Activity (LIRA), developed by Harvard’s Joint Center for Housing Studies (see related story, boxed below right, and graph at right). Homeowner spending for home improvement activity will essentially remain constant through the first quarter of 2008, with overall growth in spending for this year projected to be 3%, housing analysts said last month.

Cabinet & Vanity Sales

Sales of kitchen cabinets and bathroom vanities declined again in July 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, slid 9.4% in July compared to July of last year. Sales of stock cabinets fell 19% for the month, while semi-custom cabinet sales declined 0.3% and custom cabinet sales dropped 2.3%. Year-to-date sales through the first seven months of 2007 were down 13% from the January-July time period of 2006, the KCMA reported.

Market Analysis:

Remodeling Activity Reported Relatively Steady in Face of U.S. Housing Decline

Washington, DC — U.S. remodeling activity slowed slightly in the second quarter of this year, although activity has remained relatively steady, even in the face of the ongoing housing slump, the National Association of Home Builders said last month (see related story and graph on the right).

According to the latest in a quarterly series of Remodeling Market Indexes issued by the Washington, DC-based NAHB, current sentiment among professional remodelers reflects mixed messages.