Remodeling Offsets Lag in Housing

Continued strong activity in the residential remodeling sector seems to be countering a softening in the new-build sector as 2006 enters its second half. Among the key statistics released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

HOUSING STARTS
Rising mortgage rates, deepening affordability issues and the retreat of investors/speculators are prompting single-family home builders to further “adjust their perspectives” on the new-home market, according to the NAHB/Wells Fargo Housing Market Index (HMI) for May. Reflecting a slide in builder confidence, the HMI declined six points from the previous month, to its lowest mark since mid-1995. “The pattern of movement in the HMI is not inconsistent with the orderly cooling process we’re projecting for home sales and single-family housing starts in 2006,” said NAHB Chief Economist David Seiders, who forecast new-home sales to be off by 12%, and single-family starts to be down about 7%, from the records they posted in 2005.

EXISTING-HOME SALES
After five years of booming sales, the pattern of sharp annual increases in existing-home prices is over, NAR President Thomas Stevens said last month. “We are now experiencing normal market conditions across most of the country,” he said. “Inventory levels have come up to balanced levels between home buyers and sellers, so the pressure has come off of home prices, and most owners can expect steadier gains in home values for the foreseeable future.” The Washington, DC-based NAR reported that total existing-home sales slipped 2%, to a seasonally adjusted annual rate of 6.76 million units in April; they were 5.7% below the 7.17 million-unit pace reported in April of 2005, the NAR added.

APPLIANCE SHIPMENTS
Domestic shipments of major home appliances were up significantly in May, and continued to pace significantly ahead of year-to-date shipments through the first four months of 2005, the AHAM reported. According to the Washington, DC-based AHAM, May appliance shipments totaled 7.15 million units, up 5.1% over shipments in May, 2005. Shipments through the first four months of 2006 totaled 35.7 million units, up 11.5% over the shipments in the same time period last year, AHAM said. It’s forecasting that 81.4 million appliances will be shipped this year, surpassing 2005’s total of 79.1 million units and breaking the record for appliance shipments, set last year.

PLUMBING FIXTURES & FITTINGS
U.S. demand for plumbing fixtures and fittings, supported in part by increasing applications in the residential remodeling market, is expected to advance 2.4% per year through 2010, reveals a new research study. That data, released last month by the Cleveland-based research firm The Freedonia Group, said projected increases will also be supported “by on-going trends toward larger baths and kitchens” – a factor that will offset “weak” single-family housing starts. Demand for plumbing fixtures is projected to reach $5.8 billion by 2010, while plumbing fittings demand is expected to total more than $5 billion, said Freedonia (see graph above). Residential markets for plumbing fixtures and fittings accounted for nearly 70% of total demand in 2005, though the non-residential and non-building markets “will provide better growth prospects through 2010,” Freedonia said.

CABINET & VANITY SALES
Sales of kitchen cabinets and bath vanities increased 6.1% in April over sales in April 2005, the Kitchen Cabinet Manufacturers Association said last month. According to the Reston, VA-based KCMA, manufacturers participating in its monthly “Trend of Business” survey reported sales of stock cabinets rose 5.5% for the month, while semi-custom cabinet sales were up 7.1% and custom cabinet sales gained 4.2%. Sales for the first four months of 2006 were running 13% ahead of the same period from January through April last year, the KCMA added.


INDUSTRY STOCKS TUMBLE

Rising energy expenses and interest rates continued to plague both the U.S. economy and Wall Street in May, sending kitchen and bath industry stocks on a downward tumble – along with the rest of Wall Street.

The index of 52 key stocks of building products manufacturers, distributors, retailers, home builders and e-commerce enterprises – as tracked in Kitchen & Bath Design News’ exclusive monthly Stock Index – fell 116.00 points, or 4.25%, to close the trading period from May 5 to June 5 at 2611.83. Similarly, the Dow Jones Industrial Average fell 528.98 points, or 4.57%, ending the month-long trading period at 11048.72, and the Nasdaq Composite Index sunk 172.95 points, or 7.38%, to close at 2169.62 (see Market Diary.)

Declining stocks overwhelmed advancing issues 43-6, with nine stocks reaching a new 52-week high and 13 falling to a new annual low. Top gainers for the period included Wickes, Owens Corning and Armstrong Holdings. Home Builders. KB Homes, Ryland Group and Pulte Homes were among the biggest losers.

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