Housing Cooling To ‘Normal’ Levels

While the U.S. housing market continues to cool to levels considered normal and sustainable, remodeling activity is posting above-average growth as 2006 approaches its midpoint. Among the key statistics from government agencies, research firms and industry-related trade associations in recent weeks were the following:

Housing Starts
Indicators that measure housing demand reveal that a market cooling is underway, the National Association of Home Builders said. But the chief economist for the Washington, DC-based trade association said the evolving slowdown “is actually a healthy development” and shouldn’t lead to any major contraction in the nation’s housing markets. “Last year’s record-level of housing starts and double-digit price appreciation were unsustainable, and encouraged many investors and speculators to enter the market,” David Seiders observed. “With demand slowing, we expect to see price appreciation also falling back into the single-digit range, and that will discourage short-term speculators from jumping into the market.” Seiders also noted the NAHB anticipates “another solid year” for housing in 2006, with new-home construction and sales down about 7%-8% from last year’s all-time highs.

Existing-Home Sales
The recent rise in existing-home sales, following five consecutive months of decline, is a signal that “a stabilization” is taking place in the housing market, the National Association of Realtors said last month. Total existing-home sales – including single-family, town homes, condos and co-ops – rose 5.2% in February, to a seasonally adjusted annual rate of 6.91 million units, up from the previous month, but 0.3% below the 6.93-million-unit level posted in February 2005. David Lereah, chief economist of the Washington, DC-based NAR, said that while mild weather appears to be responsible for some of the gain, home sales should “level out” in the months ahead.

Remodeling Expenditures
The largest year-to-year increase in spending for residential remodeling in more than 10 years is expected in 2006, the Remodelors Council of the NAHB predicted last month. “The devastating 2005 hurricanes, combined with a rebound in the rental market, are expected to spur a historically high increase in spending this year, as repair work proceeds in the Gulf states and apartment owners renovate properties to maximize rental income,” said Council chairman Vince Butler. The record industry growth forecast for 2006 (13.2%) is more than double the pace of growth in 2005 when remodeling spending grew by 5.8% – in line with average annual growth of 5.3% from 1994 to 2004, the Council said. The previous growth record was posted in 2004, when spending jumped 12.2%.

Appliance Shipments
A February surge in domestic shipments of major home appliances should help make 2006 the best year on record for the appliance industry, the Association of Home Appliance Manufacturers predicted last month. According to the latest forecast issued by the Washington, DC-based AHAM, 2006 appliance shipments should total some 80.6 million units, up from the 79.1 million units shipped in 2005. The previous record year for appliances was 2004, when some 79.7 million domestic appliances were shipped, AHAM said (see related graph, above). Appliance shipments surged in February, rising 10.3% above the shipments of February, 2005. Year-to-date shipments through February were running 8.8% over the same two-month period last year, AHAM added.

Cabinet & Vanity Sales
Sales of kitchen cabinets and bath vanities rose 17.2% in February over sales in February 2005, the Kitchen Cabinet Manufacturers Association said last month. The Reston, VA-based KCMA said manufacturers participating in its monthly “Trend of Business” survey reported that sales of stock cabinets rose 17.8% for the month, while semi-custom cabinet sales were up 16.2% and custom cabinet sales rose 19.6%.