Market Seen Strong In Months Ahead

Market Seen Strong In Months Ahead

The nation's housing, remodeling and kitchen/bath markets are expected to finish off 2004 on a strong note, as market fundamentals remain solid and the economy slowly improves. That was the consensus of analysts in light of new economic data released at summer's end. Among the key statistics released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

The nation's home builders remain confident about the housing market and expect to maintain a "healthy pace" of housing starts through the coming months, the National Association of Home Builders said last month. "Favorable market conditions continue to bode well for housing," said Michael Carliner, economist for the Washington, DC-based NAHB. "Mortgage rates remain extremely attractive and with house price performance remaining solid and continued increases in household formations, we expect housing to remain strong." The NAHB also reported that declining mortgage interest rates helped push builder confidence to its highest level since October of 2003. "With the ongoing favorable financing climate and solid house-price performance, we have good reason to expect continued strength in the housing market," NAHB said.

The current level of existing single-family home sales is considerably above the record pace of 2003 and "is a significant contributor to overall U.S. economic growth," the chief economist of the National Association of Realtors said last month. NAR chief economist David Lereah, referring to the pace of resales as "a real eye-popper," said that current and anticipated mortgage rates "will preserve favorable housing affordability conditions and help to keep home sales strong in the months ahead." NAR president Walt McDonald added, "The fundamental demand from entry-level buyers, dominated by the second-largest generation in U.S. history the children of the baby boom will drive home sales over the next 10 years because this generation is entering the prime years in which people typically buy their first home." Existing-home sales are expected to reach a new benchmark this year, up some 3.4% from the record level achieved in 2003, to 6.31 million units.

Professional remodeling activity remained at a brisk pace in the second quarter of 2004, although it edged down slightly from "exceptional" levels recorded at the beginning of the year, according to data released last month by the National Association of Home Builders. The NAHB's latest in a quarterly series of "Remodeling Market Indexes" (RMI) revealed that "many remodelers are still busy and backlogged," said NAHB Remodelors Council chairman Douglas Sutton, Sr. "A year-to-year comparison shows we are set to match last year's very strong activity," Sutton said. The market remained steady in terms of minor and major additions and alterations, the NAHB reported. Kitchens and bathrooms are among the categories of remodeling work included in that market component. "With the ongoing favorable interest rates and steady activity in all regions across the board, we expect the market to stay strong," said NAHB chief economist David Seiders.

Sales of kitchen cabinets and bathroom
vanities increased 16.4% in July 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 seven months of 2004 were
running 18.5% over sales in January through July of 2003.

Market Analysis

Factors Other Than Mortgage Rates Seen as Keys to High Levels of Housing Activity

Washington, DC Housing activity in the next 10 years is expected to hold up to current high levels, though mortgage rates are unlikely to be the make-or-break factor they used to be, according to a panel of housing economists.

Speaking at a recent press conference here, the analysts agreed that projected household growth, replacement requirements and second home demand will require high levels of housing production that will not be as susceptible as in the past to minor swings in mortgage rates.

"With the economy and financial markets now heading into an expansion that has been pushing up mortgage rates, questions about how long robust home starts and sales can continue are being asked, but current levels are not above sustainability, and the housing industry won't have to make much of a transition into a stronger national economy," said National Association of Home Builders chief economist David Seiders.

According to Seiders, "it is a safe bet" that the nation's housing market will require average production of 1.85 million to 2.17 million new housing units per year in the decade ahead. "Even the lower end of this range is above the production levels of recent years," he noted.

Conventionally built single-family homes will account for about 70% of the housing supply produced in the next 10 years; multi-family units will have a 20% share of the market and the remaining 10% will be trailers, Seiders said.

The nation's rate of homeownership, which now is in the 68% range, is headed to over 70% by the end of the next 10 years, and could even hit 71%-72%, National Association of Realtors chief economist David Lereah predicted, as minority households start catching up with their non-Hispanic white counterparts.