Indicators Solid as Housing Cools

Kitchen and bath market indicators remained historically strong through the first quarter of 2006, even though the housing market is fully into a transitionary period, cooling off from the unsustainable pace of recent years. Among the key statistics released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

Housing Starts
Home builders are reporting a softening in demand as a result of rising interest rates, affordability issues and a reduced presence of investors and speculators in the housing market, the National Association of Home Builders said last month. The Washington, DC-based NAHB commented in the wake of a Commerce Dept. report that new-home construction continued its “orderly cool-down” in March, dipping 7.8%, to a seasonally adjusted annual rate of 1.96 million units. The rate of construction for the first quarter of 2006, however, was 2.131 million units, the strongest pace for any quarter of the current economic expansion. “Builders understand that the market is cooling off from the frenetic pace of the last several years and are adjusting their production levels,” said NAHB Chief Economist David Seiders. “We should see some further declines in starts as the year progresses, but we’re expecting an orderly transition to more sustainable levels,” Seiders added (see story below and graph above, right).

Existing-Home Sales
Existing-home sales should experience some ups and downs this year, but should level out and remain at historically high levels, the National Association of Realtors said. David Lereah, chief economist for the Washington, DC-based NAR, noted that mortgage rates are trending up but will remain favorable. “Economic growth and job creation are providing a favorable backdrop for the housing market, but rising interest rates have an offsetting effect,” Lereah said. “Home sales will move up and down over the rest of the year but stay at a high plateau.” Existing-home sales are projected to decline 6% this year, to 6.65 million units, from a record 7.08 million in 2005, NAR said.

New-Home Sales
Sales of new single-family homes for the first quarter 2006 were down 9.7% from the fourth quarter of 2005, and down 8.2% from the same three-month period last year. “Month-to-month changes in the new-home sales series are notoriously volatile, but the quarterly pattern of sales is reasonably in keeping with other housing indicators,” said NAHB Chief Economist David Seiders. The new-home sales pace was 1.159 million units for the first quarter, down from 1.249 million units for the first quarter of last year.

Appliance Shipments
Domestic shipments of major home appliances were up significantly in March and were pacing well ahead of year-to-date shipments through the first three months of 2005, the Association of Home Appliance Manufacturers reported. According to the Washington, DC-based AHAM, March appliance shipments totaled 9.98 million units, up 22.6% over shipments in March 2005. Shipments through the first quarter of 2006 totaled 21.4 million units, up 14.4% over shipments in the same period last year, AHAM said.

Cabinet & Vanity Sales
Sales of kitchen cabinets and bathroom vanities rose 16.8% in March over sales in March 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 16.6% for the month, while semi-custom cabinet sales were up 18.4% and custom cabinet sales increased 9.4%.

Industry Stocks Post New Gains in April

Stocks associated with the kitchen and bath industry rose again in April, in the face of mixed results on 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 KBDN’s exclusive monthly Stock Index – increased 45.99 points, or 1.71%, to close the trading period from April 5 through May 5 at 2727.83. The Dow Jones Industrial Average gained 338.24 points, or 3.01%, ending the month-long trading period at 11577.74. In contrast, however, the Nasdaq Composite Index fell 17.18 points, or 0.73%, to close at 2342.57 (see Market Diary, below).

Advancing stocks outpaced declining issues 26-22, with 18 stocks reaching a new 52-week high and four stocks dipping to new annual lows.

Top gainers for the period included 3M, Griffon Corp. and Sears. Owens Corning and home builders Ryland Group and Hovnanian Enterprises were among the biggest losers.