Housing Market Continues Surge

Housing Market Continues Surge

The nation's housing market, fueled by solid demographics and an improving economy, continued to show enormous strength through the middle of 2004, stimulating positive results in related markets, including kitchen and bath remodeling. Among the key statistics released by government agencies, research firms and industry-related trade associations in recent weeks were:

The nation's housing market "continues to fire on all cylinders," according to the National Association of Home Builders, whose chief economist said last month that he "sees no signs of any systematic weakening" in any of the nation's four major regions. Overall, housing starts hit a seasonally adjusted annual pace of 1.97 million units in May. Building permits, an indicator of future starts activity, were up 3.5% overall, to a 30-year high of 2.08 million units in May, with single-family permits rising to their highest rate on record, according to the NAHB.

Fundamentals "are still very favorable" for a vibrant existing-home sales market," according to David Lereah, chief economist for the National Association of Realtors. Lereah said in late June that the Washington, DC-based NAR "expected" the strong performance posted by resales in May, when existing single-family-home sales rose to a seasonally adjusted annual rate of 6.8 million units, the highest monthly pace on record (see graph). "In part, the record results from a natural 'fence-jumping' by buyers getting into the market after mortgage

interest rates began to rise at a sharper clip in April," Lereah observed. He cautioned, however, that May's numbers could be "the last peak in home sales for a while, and existing-home sales are likely to be slower during the second half of the year." Even so, Lereah added, "they will remain at strong levels." The NAR has projected existing-home sales to hit a record 6.17 million units this year, 1.2% above last year's 6.10 million record.

Sales of new single-family homes rose in May to a record-high, seasonally adjusted annual rate of 1.369 million units, 14.8% ahead of April's sales pace (see graph). "Buyer demand for new homes continues to be strong as the economic expansion strengthens and job growth accelerates," said National Association of Home Builders president Bobby Rayburn.

Domestic shipments of major home appliances rose sharply in May and were running well ahead of 2003's record number through the first five months of this year, according to the Association of Home Appliance Manufacturers. The Washington, DC-based trade association reported last month that May appliance shipments totaled some 7.15 million units, up 12.9% over shipments in May of 2003. Year-to-date shipments through May were pegged at 33.14 million units, up 4.4% over the same five-month period in 2003, AHAM added. May shipments rose in the key product categories of home laundry (+15%), kitchen clean-up (12.6%), cooking (+3.2%) and food preservation (+1.3%).

Sales of kitchen cabinets and bathroom vanities increased 14.5% in May 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 its monthly "Trend of Business" survey reported that year-to-date sales for the first five months of 2004 were running 17.8% over sales in January through May of 2003.

New Report Predicts Higher Housing Production in the Months Ahead

Boston Longer and more broadly based than previous expansions, today's housing boom may have passed its peak, but the industry is unlikely to see any sharp decline in house prices, sales or new construction as mortgage rates start inching up.

That's the conclusion of the "2004 State of the Nation's Housing Report," released last month by Harvard University's Joint Center for Housing Studies.

"As strong as housing construction has been in the recent past, demographic factors will propel housing production even higher over the next 10 years," said Eric Belsky, executive director of the Joint Center. "Given higher household formations, demand for second homes and replacement of units lost from the stock, production should reach at least 18.5 million and could top 19.5 million if immigration remains at current levels."

The report finds women and minorities will be playing a larger role in housing in the decade ahead, with many household formations resulting from immigration and unmarried women.

The Harvard report is bullish on prospects for housing as the economy enters a period of more robust growth because "housing construction appears to be in line with long-run demand, and a strengthening economy should support house prices," the Joint Center says.

As interest rates rise gradually, "construction should hold near its current pace and house price inflation should moderate rather than turn negative," the Joint Center predicts. "If job growth falters or interest rates spike, however, housing could be in for a rougher ride."