Housing, At Peak, Seen Holding in '05

The nation's booming housing market which has resulted in an equally robust market for kitchens and baths should hold up in 2005, although activity is expected to be off of its 2004 peak, according to the latest reported economic and market barometers. Among the key statistics released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

Activity in the nation's booming housing industry has reached its peak, but should hold up at fairly robust levels into 2005, according to a consensus of economists participating in the National Association of Home Builders' semi-annual Construction Forecast Conference. Panelists at last month's conference were largely optimistic about prospects for the residential construction industry. "The housing market has been nothing short of phenomenal," said NAHB chief economist David Seiders. However, he noted, the nation's housing market is in the process of "reaching its limits" and "topping out." With activity "flattening in 2005," Seiders projected a decline in housing starts next year of about 4.2%, to 1.85 million units, down from the 1.935 million starts projected for this year. Single-family production is poised to set another record this year, Seiders said, and the fundamentals of the market will remain good in 2005, even though some households may have moved up their home-buying plans from next year to this year when they saw mortgage interest rates starting to rise. The Washington, DC-based NAHB is forecasting that fixed-rate mortgages will average 6.5% in 2005, up from 5.9% this year, "which would leave the cost of home financing at relatively affordable levels," Seiders said.

Existing-home sales are expected to decline from "superb to a very decent sales pace," according to the latest forecast issued by the National Association of Realtors. The Washington, DC-based NAR said last month that, despite recent declines in the sales pace for resales, the 2004 pace was still running 7% higher than the record set for existing-home sales in 2003. Last year saw some 6.1 million existing homes change hands, the NAR said. According to senior forecast economist Lawrence Yun, existing-home sales should fall modestly in 2005, after having a fourth consecutive record this year (see related table, above).

Kitchens and baths remain prime targets for remodeling investments by recent buyers of existing homes, according to a recent survey on home buyer preferences conducted by the National Association of Realtors. The Washington, DC-based NAR reported last month that its survey revealed that 22% of first-time buyers plan to remodel their kitchen within two years, compared to 11% of repeat buyers. Bathroom remodeling plans generated similar findings, with 20% of first-time buyers and 14% of repeat buyers saying they plan to remodel within two years. Among the list of interior features most desired by these buyers are a separate shower in the master bath (36%) and an eat-in kitchen (32%), the trade association said (see related story, boxed below).

Sales of kitchen cabinets and bathroom vanities increased 11.8% in September of this year 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 nine months of 2004 were running 17.6% over sales that were reported for January through August of 2003.

Market Analysis

Growth Forecast for Nation's Residential Remodeling Industry Over Next Few Years

The nation's residential remodeling industry can look forward to annual growth of about 5% for the next few years, according to a leading housing industry analyst.

Speaking at the National Association of Home Builders semi-annual Construction Forecast Conference here last month, Kermit Baker, director of the Remodeling Futures Program at the Harvard Joint Center for Housing Studies, said that annual remodeling activity has grown strongly over the past decade, rising from about $153.1 billion in 1995 to some $233.3 billion at the end of
last year.

Homeowners spent an estimated $129 billion on home improvements and repairs over the first three-quarters of 2004, a 5.1% increase over the same period in 2003, Baker said. Home improvements accounted for $138 billion of remodeling activity last year, and about $60 billion of that amount was spent on interior space additions and alterations, including upgrades for kitchens and baths,
he added.

According to Baker, the remodeling industry is being helped by the country's rapidly aging housing stock. Homes that were built in the 1970s are accounting for a large share of the remodeling market as they hit the typical 25-30 year life cycle in which improvements start to be needed.

Spending at the higher end of the marketplace is also supporting growth, Baker said. The number of households spending $25,000 or more annually on remodeling doubled from 16% in 1995 to 31.2% last year.

In addition, he noted, immigrants "have caught up fast" with native-born homeowners, with Hispanic households leading the current surge in home improvement spending. "That trend will only intensify as minorities increasingly become homeowners," Baker reported.

"They are expected to account for nearly half of the increase in the home-owning population by 2015."