Early Indicators Point To Another Solid Year

Indicators continue to point to another solid year for housing and the kitchen/bath market in 2005, even as results from a highly positive 2004 continue to be compiled. Among the key statistics released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

Stronger-than-expected home sales and higher median prices have caused the National Association of Realtors to upwardly revise its year-end forecast for 2004, with existing-home sales expected to jump 7.9%, to 6.58 million units, well above the record set in 2003. For 2005, The Washington, DC-based NAR projects 6.38 million sales, which would be the second highest level on record (see related graph, above right). "We're setting our fourth consecutive record year for existing-home sales, and even with strong fundamentals such as household growth, low interest rates and an improving economy, we simply can't set records every year," said David Lereah, the NAR's chief economist. "Given the sharp rise over last year's record, a lot of buyers have found the home they've been looking for and we can expect a bit of a breather in 2005, which will remain a historically strong year, Lereah said. Lereah said he expects economic conditions in 2005 will be comparable with those of last year. "Our forecast is for a continuation of strong home sales, although down a little from the record-setting pace of 2004," he said.

Last year proved to be "a banner year" for residential remodeling, due largely to historically low interest rates and a solid level of consumer confidence, the National Association of Home Builders reported. According to the Washington, DC-based NAHB, its latest in a series of Remodeling Market Indexes (RMI) posted a strong third quarter. "With home sales remaining record-breaking, the major additions and alterations sector has kept many remodelers busy with continually growing backlogs," said NAHB Remodelors Council chairman Douglas Sutton, Sr. The RMI is derived from a quarterly national survey of 500 remodelers. "With the ongoing favorable interest rates, rising employment and household incomes, and high home price appreciation rates, we expect the remodeling market to remain on a strong growth path," said NAHB Chief Economist David Seiders. "The outlook for 2005 is quite good."

The nation's home builders were in good holiday spirits through December 2004, maintaining a high level of confidence, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). The December HMI edged up from past readings, indicating maintenance of strong builder attitudes in the last three months, the Washington, DC-based NAHB reported. "Builders have every reason for good cheer this holiday season," said NAHB president Bobby Rayburn. "Buyer demand continues to keep builders busy, and builders are happiest when they're busy."

Sales of kitchen cabinets and bathroom vanities increased 18.8% in November 2004 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 year-to-date sales for the first 11 months of 2004 were running 16.8% over sales in January through November of 2003.

Domestic shipments of major home appliances rose again in December of 2004, with the year establishing a new shipment record, the Association of Home Appliance Manufacturers reported. According to the Washington, DC-based AHAM, December '04 appliance shipments rose 26.9% over shipments the same month a year earlier. A record 77.9 million appliances were shipped in 2004, up 5.8% over the 73.7 million units that were shipped in 2003. 2004 increases were reported in the key product categories of kitchen clean-up (+8.2%), home laundry (+8.1%), cooking (+7.6%), and food preservation (+7.1%), AHAM said.

Market Analysis

New Study: Housing Wealth Greater Key to Consumer Spending Than Stocks

Washington, DC Housing wealth has a more immediate impact on consumer spending than stock wealth and has sustained the U.S. economy since the beginning of this decade, a new study reveals.

The study produced by the Joint Center for Housing Studies of Harvard University and Macroeconomic Advisers, LCC was commissioned by the National Association of Realtors.

According to David Lereah, the NAR's chief economist, the study shows a large difference between the impact of housing wealth and stock wealth on consumer spending, particularly during the last economic downturn.

"Aggressive cuts in short-term interest rates at the beginning of the decade forestalled economic problems and led to record home sales and home equity borrowing," Lereah commented. "Without the stimulus, housing's contribution to consumer spending would have been about half as great, the recession much worse, and the recovery less robust."

A major finding in the study is that over time, consumers spend about five-and-a-half cents out of every dollar increase in both housing wealth and stock wealth. However, spending from housing wealth only takes about a year to reach 80% of its long-run effect, compared with nearly five years for stock wealth to have the same effect likely because near-term gains in stock wealth could prove to be unsustainable.

"Housing produces a quicker lift to the economy while home-price growth provides lasting benefits," Lereah said. "Homeowners are more confident of gains in housing wealth, so they spend more readily when they occur."