Records Posted, As Market Cools

The nation’s housing market, as expected, continues to cool from the torrid pace of 2005, although the year should shape up by most estimates to be very solid. Among the key statistics released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

Housing Starts
Despite the anticipated year-end slowdown, U.S. home builders set a new record for single-family housing production in 2005, topping 2.06 million units, according to the National Association of Home Builders. The Washington, DC-based NAHB noted that housing starts last year were up 5.6% from 2004, and represented the second-highest number on record, following 1972’s 2.36 million units. On the single-family side, housing starts hit 1.71 million units in 2005, up 6.4% from 2004 and the best pace ever recorded, the NAHB reported. The housing market is expected to return “to a healthy and more sustainable pace” in 2006, the trade association added. The NAHB’s latest forecast for 2006 anticipates a 6.5% decline in national housing starts, to approximately 1.93 million units.

Existing-Home Sales
As expected, existing-home sales easily set an annual record in 2005, the National Association of Realtors reported last month. There were 7.072 million existing-home sales recorded for the year, up 4.2% from 6.784 resales of 2004, and the fifth consecutive annual record, the Washington, DC-based NAR said. Despite recent declines, the level of home sales activity “is now at a sustainable level, and is likely to pick up a bit in the months ahead,” said David Lereah, NAR’s chief economist. “Overall fundamentals remain solid, so we expect the housing market to remain historically high,” Lereah commented.

New-Home Sales
New-home sales across all regions of the country were mixed in 2005, even though sales of new single-family homes set an all-time record, the National Association of Home Builders reported. Total new single-family home sales for 2005 reached a record 1.282 million, up 6.6% from the previous annual record of 1.203 million, set in 2004. However, while sales were strong in the South and West, they declined in the Northeast and Midwest, the Washington, DC-based NAHB reported. Sales were up in the South by 13.3% and up in the West by 3.4%. Sales dropped in the Northeast and Midwest by 2.4% and 2.9%, respectively. According to NAHB Chief Economist David Seiders, expectations are for a 6-7% decline in new-home sales this year – “but certainly no reason for alarm. This would make 2006 the second or third best year in housing history,” Seiders said.

Cabinet & Vanity Sales
Sales of kitchen cabinets and bathroom vanities increased 13.3% in 2005 over sales a year earlier, 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 12.9% for the year, while semi-custom cabinet sales were up 14.6% and custom cabinet sales increased 9.7%.

Market Analysis
Pending Home Sales Index Down, But Expectations Reported Up for the Months Ahead

WASHINGTON, DC — Pending home sales continue to decline as the housing market cools down, although conditions are expected to improve in the months ahead, according to the National Association of Realtors.

The “Pending Home Sales Index,” a measurement compiled by the Washington, DC-based NAR, was down 3% in December 2005, and was 5.5% below December 2004. Pending sales have trended steadily down from a record index last August, the NAR reported (see related graph).

The Pending Home Sales Index is based on pending sales of existing homes. A sale is listed as considered “pending” when the contract has been signed and the transaction has not closed, but the sale usually is finalized within one or two months of signing. An index of 100 is equal to the average level of contract activity during 2001, the first year to be examined, and the first of five consecutive record years for existing-home sales. David Lereah, NAR’s chief economist, said momentum in the housing market shifts slowly. “Changes in the overall direction of the housing market are akin to a large ship making course corrections – it takes some time for the driving factors to materialize as a change in the sales level,” he said.

Lereah noted he wouldn’t “be surprised” to see conditions improve, based on the current level of mortgage rates. But even with an upturn in sales, he said he expects the housing market to stay below last year’s record.

“We’re going through a period of adjustment,” Lereah observed. “As home sellers recognize a return to more normal rates of price growth, some who have been holding out for higher prices will be more willing to negotiate terms that are acceptable to buyers but still provide them a solid return on their investment.”

Stocks Decline Per Interest Rate Hike

Stocks associated with the kitchen and bath industry declined in January with an interest rate hike by the Federal Reserve.

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 – plunged 114.77 points, or 4.34%, to close the trading period from Jan. 5 through Feb. 3 at 2527.90. The Dow Jones Industrial Average fell 88.58 points, or 0.81%, ending the month-long trading period at 10793.62, while the Nasdaq Composite Index lost 14.29 points, or 0.63%, to close at 2262.58 (see Market Diary).

Declining stocks edged out advancing issues 27-23, with 15 stocks reaching a new 52-week high and three hitting a new annual low. Top gainers included Owens Corning, Armstrong Holdings and American Woodmark. Toll Brothers, HydroMaid and Beazer Homes were among the biggest losers.