Indicators Reflect Strong '04 Finish

An extremely vibrant housing market, buoyed by a string of strong fundamentals, continued to pump life into the kitchen and bath market as 2004 moved solidly toward the home stretch. Among the key statistics released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

HOUSING STARTS & NEW-HOME SALES
New-home sales "continue to maintain a very high pace" for the year, while builders across the country remain upbeat about the housing market, the National Association of Home Builders said last month. "The fundamentals supporting the new-home market still are quite strong," said David Seiders, chief economist for the Washington, DC-based NAHB. "Under these conditions, new-home sales are definitely heading toward another record in 2004." New-home sales are expected to rise to about 1.16 million units this year, up some 7% over the record level posted in 2003. In the meantime, housing starts climbed back to the highest pace of the year in August, reaching a seasonably adjusted annual rate of 2.0 million units, the NAHB noted. The 2-million-unit pace meant that total housing starts were up by 10.4% on a year-to-date basis over 2003. Housing starts "are likely to slip a bit in the fourth quarter as interest rates firm up, but it's now clear that single-family home production will hit a new annual record in 2004," Seiders observed (see related graph above, right).

EXISTING-HOME SALES
Greater-than-expected sales of existing homes in the first seven months of the year will help set a record for annual existing-home sales in 2004, according to the National Association of Realtors, which predicted that existing-home sales will rise about 6.5% this year, to 6.5 million units. If achieved, it will represent the fourth consecutive year that home sales have climbed to a new record high, the Washington, DC-based NAHB said. David Lereah, NAR's chief economist, said a continued decline in mortgage interest rates is creating favorable market conditions at a time when household formation is rising. Although NAR projects the 30-year fixed-rate mortgage to slowly rise to 6% in the fourth quarter, the average rate for the entire year should be 5.9%, the second-lowest annual average since the mid 1960s. The lowest rate in recent years was 5.8% in 2003. "Price appreciation is projected to be only slightly higher than historic norms next year, as supply levels come closer to market demand. Although we expect the number of home buyers to continue to exceed the number of sellers, the situation should improve in 2005," Lereah said.

APPLIANCE SHIPMENTS
Domestic shipments of major home appliances rose in August compared to the same month in 2003, and were running slightly ahead of last year's record number, according to the Association of Home Appliance Manufacturers. The Washington, DC-based
trade association reported last month that August appliance shipments totaled some 5.66 million units, up 3.9% over shipments in August of 2003. Year-to-date shipments through August were pegged at 52.52 million units, up 3.5% over the same eight-month period in 2003, AHAM added. August shipments rose in the key product categories of kitchen clean-up (9.7%), food preservation (+8.1%), and home laundry (4.6%) according to the association. Shipments of cooking products declined, however, by 2.4%, AHAM reported.

CABINET & VANITY SALES
Sales of kitchen cabinets and bathroom vanities increased 17.3% 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 year-to-date sales for the first eight months of 2004 were running 18.4% over sales in January through August of 2003.

Market Analysis

Housing Market Seen 'Coasting' in Future From Record Highs of 2004

Washington, DC After setting unprecedented highs this year, home sales should ease but remain historically strong in 2005, according to the National Association of Realtors.

The Washington, DC-based NAR made its prediction last month, after announcing that existing-home sales are projected to easily set a record of about 6.49 million this year, well above the previous record of 6.10 million units, set in 2003. The NAR projected that new-home sales also will hit a record with 1.15 million units, compared with 1.09 million in 2003.

According to David Lereah, NAR's chief economist, month-to-month existing-home sales should not experience significant shifts next year. "In the first quarter of 2005, the trend will be a gradual ease in the sales pace with the housing market coasting at historically high levels as mortgage interest rates rise," Lereah said. "At this point with strong market fundamentals we project next year will be the second-best overall year for the housing market."

Housing starts are forecast to increase 4.8%, to about 1.94 million units this year, compared with 1.85 million last year the strongest pace since 1978 when baby boomers were entering the market en masse. Similar to the home sales market, housing construction is being forecast to ease in 2005.

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