Market Holding Own in Face of Housing Dip

As 2006 came to a close, evidence showed that the residential remodeling sector was holding its own, even in the face of the continued slide in housing.

Remodeling activity picked up in the third quarter of 2006, according to the National Association of Home Builders’ latest “Remodeling Market Index,” which revealed modest upticks in both current market conditions and future expectations. Results of the quarterly series of remodeler surveys were released last month. “Though market strength varies across the country, we’re pleased to see a rebound in remodeling activity,” said NAHB Remodelors Council chairman, Vince Butler. “The trillions of dollars in homeowner equity combined with the growing age of the housing stock means that the remodeling market will remain relatively strong in the face of a slower housing market.”

“While growth of remodeling activity slowed as new home construction has declined, we still anticipate a strong year in the remodeling market,” said NAHB chief economist, Dave Seiders, adding that the NAHB is currently forecasting $233 billion in home remodeling spending for 2006, up from $215 billion in 2005.

Existing-home Sales

Following a “correction” in home sales and prices in 2006, existing-home sales are expected to “coast” at roughly the same level next year, although there will be some additional decline in the new-home market, according to the latest forecast released by the National Association of Realtors.

“Overall home price gains will be modest, and sellers are adjusting to the market transition,” said David Lereah, chief economist for the Washington, D.C.-based NAR. “Home sellers are becoming realistic about current market conditions and are now offering more competitive pricing, in addition to some incentives or concessions — especially to help first-time buyers.

“We now have the most favorable market for home buyers in several years, and most sellers are still seeing very healthy returns on their investment. The market promises to be more balanced between buyers and sellers by early spring, supporting future price growth,” he added.
Existing-home sales, expected to fall 8.6 percent, to 6.47 million in 2006, are projected to be essentially even in 2007, with a 0.6 percent decline to 6.43 million, the NAR said. New-home sales, likely to drop 16.8 percent to 1.07 million in 2006, are forecast to fall another 8.7 percent next year to 975,000, largely due to a significant reduction in construction by builders. Total housing starts this year will probably fall 10.6 percent to 1.85 million units, and then decline another 11.8 percent to 1.63 million in 2007.

Market Analysis

Homeowners confident over housing prospects, survey reveals

Washington, D.C. — Americans remain highly confident about the nation’s housing prospects, with more than four out of five homeowners expecting the value of their home to appreciate over the next five years and nearly seven out of 10 calling it their most valuable investment, according to the results from a new nationwide survey.

Results of the survey, conducted by the Washington, D.C.-based National Association of Home Builders, were announced last month. The survey, involving some 2,000 households, was conducted in late October of 2006, the NAHB said.

“The poll clearly debunks the more sensational media reports speculating on the demise of the housing market,” commented NAHB president, David Pressly. “It’s interesting to note that other polls conducted by major news organizations have come up with similar results, indicating that despite the current housing market downturn Americans resoundingly believe that buying a home is the best investment they can ever make.”
According to the NAHB, the poll revealed 81 percent of homeowners believe the value of their homes will rise over the next five years. In contrast, only 13 percent felt their home would fall in value, while 4 percent expected no change and 3 percent were unsure.

In addition, 69 percent of the respondents listed their home as their most valuable investment. This was followed by 401(k) and other retirement accounts (11 percent).

The NAHB said the housing market is poised for solid and sustained growth in the future.

“We’re in the midst of an inevitable adjustment following the housing boom of 2004-2005, when housing market activity soared to unsustainable levels,” said NAHB chief economist, David Seiders. “Housing demand should stabilize in short order and the downward adjustment to housing production should run its course by mid-2007.

Added Seiders: “The market that emerges from this correction will display good balance between supply and demand and move to a healthy and sustainable trend based on solid underlying fundamentals.”

Kitchen Remodeling

Appliance shipments rise

Domestic shipments of major home appliances are expected to rise modestly — but, once again, to record levels — in 2007, the Association of Home Appliance Manufacturers forecast last month (see chart below).

The Washington, D.C.-based AHAM predicted that total major appliance shipments would hit a record 81.82 million units this year, just over the 81.74 million units that the association estimated were shipped in 2006. The previous record, set in 2004, was 79.21 million units, AHAM said. They are projecting modest gains in all the appliance categories, including cooking products (24.6 million units), laundry equipment (18.02 million units), kitchen cleanup (14.84 million units) and food preservation (13.79 million units).

Kitchens & Baths

Cabinet, vanity sales move higher

Sales of kitchen cabinets and bathroom vanities rose 0.8 percent in October 2006 over sales in October of 2005, 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 sales of stock cabinets rose 1.0 percent for the month, while semicustom cabinet sales advanced 1.8 percent and custom cabinet sales declined 6.2 percent. Sales for the first 10 months of 2006 were running 8.6 percent ahead of the same period from January through October of last year, the KCMA added.

Roofing and Decking

Carlyle Group buying ElkCorp for $827M

The Carlyle Group, a major private equity firm, is buying roofing and building materials maker ElkCorp for about $827 million in cash, plus the assumption of $173 million in debt, ElkCorp said Monday.

Under terms of the deal, which is still subject to shareholder approval, shareholders will get $38 per share — a 51 percent premium over the price in early November, when the company disclosed it had hired an investment bank to begin looking at options.

ElkCorp Chairman and Chief Executive Thomas D. Karol said the company, which reported $929.8 million in sales during its last fiscal year, received multiple offers. The buyout is expected to close by spring.

Separately, Carlyle agreed to a deal with Hood Companies Inc. to merge Hood subsidiary Atlas Roofing Corp. with Dallas-based ElkCorp. The two deals are not contingent upon one another.

ElkCorp has manufacturing facilities for shingles, composite wood decking and other materials in Texas, California, Pennsylvania, Alabama, Kansas and Ohio.

Appliance Shipments

Trends & Forecast for Domestic Shipments of Major Home Appliances
Millions of Units

 
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Cooking
16.13
17.95
19.54
20.85
21.55
21.92
23.32
25.39
23.81
24.23
24.57
Home Laundry
11.64
12.62
13.62
14.07
13.86
14.64
15.48
16.75
17.38
17.78
18.02
Kitchen Cleanup
9.55
10.19
11.19
11.43
11.29
12.14
12.83
13.88
14.57
14.55
14.84
Food Preservation
9.41
10.40
11.09
11.18
11.52
12.28
12.54
13.43
13.35
13.58
13.79
Total Appliances
51.38
56.72
62.69
64.60
67.92
73.69
79.21
79.12
81.74
81.82
64.99
Source: AHAM

With few exceptions, domestic shipments of major home appliances have posted steady year-to-year gains for the past 10 years, reaching record heights last year. As the graph above illustrates, the latest forecast for 2007 projects another record year, although gains are expected to be modest across all major appliance categories (see related story above).

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