Cooling Underway In Housing Market

The housing market, while still posting historically strong numbers, is in the midst of an inevitable cooling-off period - with the pace of new-home construction, buying activity, consumer confidence and builder confidence all off from previously-posted highs. Among the key statistics released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

NEW- & EXISTING-HOME SALES

The fundamental factors for home sales - a growing population and favorable affordability - should ensure that existing-home sales remain at healthy levels, according to David Lereah, chief economist for the National Association of Realtors. Existing-home sales increased 2% in August to the second-highest pace on record, according to the Washington, DC-based NAR. Total existing-home sales - including single-family units, townhomes, condominiums and co-ops - rose in August to a seasonally adjusted annual rate of 7.29 million, up from the pace of 7.15 million in July and 7.8% higher than in August of 2004, the NAR noted. In the meantime, sales of new single-family homes declined 9.9% in August, to a seasonally adjusted annual rate of 1.237 million units in August, following a record buying surge a month earlier, the National Association of Home Builders reported. Despite the decline, the August sales rate was 6.2% above that of a year ago, according to the Washington, DC-based NAHB.

APPLIANCE SHIPMENTS

Domestic shipments of major home appliances posted a modest increase in August, but were still pacing slightly below the record pace of 2004 through the first eight months of this year, the Association of Home Appliance Manufacturers reported. According to the Washington, DC-based AHAM, August appliance shipments totaled 5.87 million units, up 2.2% from the 5.75 million appliances shipped in August of 2004. Year-to-date shipments, pegged at 53.34 million units, were down 0.2% from the total of 53.43 million posted for the first eight months of 2004, AHAM reported. Gains in August, however, were driven primarily by increases in shipments of home comfort and laundry equipment. In contrast, shipments of cooking and food preservation appliances were both down 3.9%­, while shipments of kitchen cleanup appliances were up just 0.8%, according to AHAM.

CABINET & VANITY SALES

Sales of kitchen cabinets and bathroom vanities rose 11.1% in August 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 gained 14.4% % for the month, while semi-custom cabinet sales rose 6.3% and custom cabinet sales increased 14.1%. Year-to-date cabinet sales for the first eight months of 2005 were up 14.0% over the same period a year ago, the KCMA added.

LAMINATE DEMAND

U.S. sales of decorative laminates are forecast to increase by 3.9% per year, to 15.7 billion sq. ft. - valued at $6.2 billion, in 2009 - according to a study from The Freedonia Group, Inc., a Cleveland, OH-based market research firm. The study - which includes high- and low-pressure laminates, as well as edgebanding - noted that market gains will result largely from a sharp rebound in non-residential construction, and a recovery in manufactured housing output, which will create demand for wall panels. Additional gains should be spurred by increased demand for laminate flooring, particularly in residential remodeling, the research firm reported. High-pressure laminates are expected to continue to post above-average growth through 2009, and will dominate most horizontal applications, the research firm observed. Kitchen and bath products (countertops and cabinets) will use almost 5 billion sq. ft. of decorative laminates by 2009, the company added.

Market Analysis

Washington, DC — The direct housing needs for evacuees of Hurricane Katrina, and lower interest rates that will soften the storm's economic hit, mean there will be long-term consequences for housing as well as for the overall economy, analysts said last month.

According to David Lereah, chief economist for the National Association of Realtors, shortages of building materials - made worse by the need to rebuild in areas hit by Katrina - will increase home construction costs, and ultimately prices.

"As displaced residents try to get back on their feet in new locations, home sales have spiked - along with rental demand - in regions surrounding the disaster zone," Lereah said. He noted, however, that mortgage interest rates will rise more slowly as a result of post-storm economic conditions, to accommodate the losses of homes, jobs and businesses.

"The lower level of borrowing costs will provide additional lift to home sales in other regions," the economist observed, adding that demand will continue to outstrip supply in most areas, "which will keep pressure on home prices."

It is estimated that 80% of the homes in New Orleans will have to be rebuilt. Along with homes that will have to be replaced along the Mississippi and Alabama coastline, a minimum of 200,000 homes have been lost, according to government estimates.

The storm's impact will cause the economy to grow more slowly than in earlier projections, but the economy will get a lift once rebuilding gets underway, Lereah said.

Stockwatch

Impact of Hurricanes Hurts Stocks Again

Stocks associated with the kitchen and bath industry plummeted once again in September, as the beleaguered Gulf Coast states - along with Wall Street itself - attempted to recover from the impact of Hurricanes Katrina and Rita.

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 - declined 60.15 points, or 2.39%, to close the trading period from Sept. 2 through Oct. 5 at 2455.13. In similar fashion, the Dow Jones Industrial Average plunged 130.04 points, or 1.78%, ending the month-long trading period at 10317.36, while the Nasdaq Composite Index dropped 38.05 points, or 1.78%, to close at 2103.02 (see Market Diary, below).

Declining stocks outpaced advancing issues 40-10, with only five of the stocks reaching a new 52-week high and an equal number declining to a new annual low.

Top gainers for the period included Knape & Vogt Mfg. and Electrolux AB.

Editor's Note: Several of the companies listed in KBDN's monthly Stock Index are parent companies of - or have key financial ties to - building and remodeling industry product suppliers. Included are the following: Armstrong World Industries (Triangle Pacific, Bruce Hardwood, Hartco Flooring); Black & Decker (Price Pfister, Kwikset, DeWalt); DR Horton (Schuler Homes); Electrolux AB (Frigidaire Co.); Fortune Brands (Moen, MasterBrand Cabinets - Aristokraft, Decorá, Diamond, Kemper, Omega Cabinetry and Schrock); Griffon Corp. (CLOPAY); Illinois Tool (Wilsonart International, Florida Tile); IAC/InterActiveCorp (ServiceMagic, Inc.); International Paper (Nevamar); Knape & Vogt (Feeny Mfg.); Masco Corp. (Merillat Industries, KraftMaid, Delta Faucet, Peerless Faucets, Aqua Glass/Huppe, Melard Mfg., Zenith Products and Baldwin Hardware); Maytag Co. (Jenn-Air and Magic Chef); Mohawk Industries (Dal-Tile); Newell Rubbermaid (Amerock); OfficeMax (formerly Boise Cascade); Pentair (Porter-Cable); Technical Olympic USA (Engle Holdings Corp. and other home-building companies.); Tomkins (LASCO Bathware and Pegler Ltd.); U.S. Industries (Jacuzzi Brands, Inc.); Weyco Group (Willamette Industries); and Whirlpool Corp. (KitchenAid and Roper).

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