Market Positive Despite Cooling

A drop in consumer confidence, fueled by rising interest rates, put a bit of a damper on the housing market – amid predictions of a modest decline from record-breaking levels – as the fourth quarter of ’05 got underway. Among the key statistics released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

Housing Starts
The cooling off of the robust housing market, evident for the first time in the fourth quarter of 2005, was “inevitable” following the record-breaking sales posted during most of the year, the National Association of Home Builders said last month. “Builders continue to operate at a very healthy pace, but we are well aware that some slowing of demand is inevitable,” said Dave Wilson, president of the Washington, DC-based NAHB. Wilson commented after the pace of new-home construction and the issuance of building permits both declined in October, 2005. “It appears that housing starts…hit their peaks during the third quarter and that housing market activity has begun to cool,” said NAHB Chief Economist David Seiders. “Rising house prices and interest rates [are eroding] housing affordability and consumers also [are] concerned about the cost of heating their homes this winter.” According to Seiders, the current cooling-down period should extend into this year, but not lead to a major contraction in the housing markets. NAHB’s forecast points to a 5.5% decline in housing starts for 2006, retracting the increase posted last year (see related “Forecast 2006,” ADD LINK HERE).

Existing-Home Sales
Total state existing-home sales set a record in the third quarter of 2005, with 44 states and the District of Columbia showing higher sales compared to a year ago, according to the National Association of Realtors. The NAR’s latest quarterly report on total existing-home sales, which include single-family and condos, revealed that the national seasonally adjusted annual rate was 7.24 million units in last year’s third quarter, up 6.5% from 6.80 million in the third quarter of 2004. The previous record was 7.22 million units, posted in the second quarter of last year. “We’re fairly confident that third-quarter home sales will prove to be the high point of the five-year housing boom,” said NAR chief economist David Lereah. “Favorable housing affordability conditions complemented a strong fundamental demand, but we expect a modest easing from higher mortgage interest rates and home sales will hold at a more sustainable pace.” He expects overall home sales in 2006 to be the second highest on record.

Cabinet & Vanity Sales
Sales of kitchen cabinets and bathroom vanities increased 10.7% in October 2005 over sales the same month 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 8.7% for the month, while semi-custom cabinet sales gained 14.4% and custom cabinet sales increased 3.0%. Year-to-date cabinet sales for the first 10 months of 2005 were up 13.7% over the same period a year ago, the KCMA added.

Appliance Shipments
Domestic shipments of major home appliances increased marginally in October 2005, and remained on pace with the record-breaking totals posted in 2004 through the first 10 months of this year, the Association of Home Appliance Manufacturers reported. According to the Washington, DC-based AHAM, October appliance shipments totaled 5.68 million units, up 0.6% from the 5.65 million units shipped in October of 2004. Year-to-date totals through October were pegged at 66.5 million units, 0.3% above last year’s record pace.

Industry Stocks Post New Gains

Stocks associated with the kitchen and bath industry extended their gains through November of 2005.

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 – jumped 124.19 points, or 4.90%, to close the trading period from Nov. 4 through Dec. 5 at 2658.80. Reflecting the upward trend, the Dow Jones Industrial Average rose 304.21 points, or 2.89%, ending the month-long trading period at 10835.01, while the Nasdaq Composite Index advanced 88.21 points, or 4.07%, to close at 2257.64.

Advancing stocks outpaced declining issues 43-9, with eight stocks reaching a new 52-week high and only two declining to a new annual low.

Top gainers for the period included Georgia- Pacific Corp, Beazer Homes and Armstrong Holdings. American Woodmark and Toll Brothers were among the biggest losers.

Builder Confidence Reflecting Expectation for Slowdown, According to NAHB
WASHINGTON, DC — Responding to lowered consumer confidence, as well as rising mortgage rates and other factors in recent months, single-family home builders are adjusting their market expectations downward, although their overall perspective remains positive.

That was the word from the National Association of Home Builders on the eve of the association’s annual trade show in Orlando this month.

Citing a decline in the latest in a monthly series of NAHB/Wells Fargo Housing Market Indexes, the Washington, DC-based trade association said the majority of builders surveyed still see conditions as positive in their markets.

“It’s important to keep [the latest HMI] in perspective,” said NAHB President Dave Wilson. “Many builders still have substantial backlogs of unfilled orders and will remain quite busy in coming months. But we’re well aware that some slowing is inevitable following the record-breaking sales activity.”

“No huge drop is in the cards – the sharp decline in the HMI probably overstates the actual degree of deterioration in the single-family market, and it’s most likely that we’re engaged in an orderly cooling process that will lead to somewhat lower home sales in the future,” added NAHB Chief Economist David Seiders.

The NAHB has forecast a 5-6% decline in home sales this year, compared to 2005.

Seiders cited a deterioration in consumer attitudes in recent months, spurred by recent hurricanes, higher energy costs and rising interest rates.