Post-War Housing Market Seen as Solid

Post-War Housing Market Seen as Solid

Conditions in the housing, remodeling and kitchen/bath markets improved markedly in the second quarter of 2003, analysts agreed. Among the key statistics released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

Following a lull in residential remodeling at the end of 2002, professional remodelers reported a busier beginning to 2003 and significantly improved expectations for the rest of this year, according to the results of the National Association of Home Builders' latest Remodeling Market Index (RMI). The RMI is based on a quarterly survey of more than 600 professional remodelers, who assess current, as well as future, market conditions. Noted NAHB Chief Economist David Seiders, "Current additions, alterations and maintenance and repair work ordered by homeowners ascended to very healthy levels at the beginning of this year, and professional remodelers are quite optimistic that conditions in this sector will continue to improve."

Lower mortgage interest rates offset higher home prices and improved housing affordability conditions in the first quarter of 2003, to their most favorable level in 30 years, the National Association of Realtors reported last month. The NAR's Composite Housing Affordability Index reached 144.0 during the first quarter, up 3.7% from the 140.3 reported in the fourth quarter of 2002, the Washington, DC-based association said. The Index was 8.2 points higher than the same period a year earlier, when it stood at 135.8 (see graph, above right). The index reveals that the nation's typical household had 144.0% of the income needed to purchase a home at the first-quarter median existing-home price of $161,500.

The recent increase in new home construction has "provided reassurance that housing activity will proceed at a healthy level this year," said Kent Conine, president of the NAHB. NAHB's Seiders said that recent housing figures "provide good news that the industry remained resilient through major weather gyrations, as well as uncertainties related to the war in Iraq and a potential terrorist backlash." At the same time, the NAHB announced that new-home sales rebounded sharply in March, and said that builder confidence in the market for new single-family homes stabilized in early April. "Signs that the situation in Iraq is under control and that consumer confidence is reviving are giving builders a sense of reassurance," said Conine.

Sales of kitchen cabinets and bathroom vanities rose 8.6% in March compared to the same
month a year earlier, the Kitchen Cabinet Manufacturers Association said last month. The Reston, VA-based KCMA noted that manufacturers participating in the association's monthly "Trend of Business" survey reported that
year-to-date sales through March were up
9.6% over sales during the same three-month period last year.

Domestic shipments of major home appliances, recovering from a slow early-year pace, surged in March, the Association of Home Appliance Manufacturers reported. According to the Washington, DC-based AHAM, March appliance shipments rose 10.5% over shipments in March of 2002. Year-to-date shipments for the first three months of 2003 were up 6.6% over that time span last year, AHAM said. The March gains were posted primarily in laundry and home comfort equipment, however. While kitchen cleanup appliance shipments rose 2.1% compared to March 2002, shipments of cooking appliances (-7.3%) and food preservation products (-2.3%) both declined, AHAM noted.

K&BDN Monthly Index Posts Sharp Gain

After several months of uneven results, the "Kitchen & Bath Industry Performance Index" bounced back strongly this month, rising sharply as a result of rising consumer confidence and broad-based increases in industry-related sales and product shipments.

The Index an exclusive monthly gauge of business developed by Kitchen & Bath Design News surged this month to 102.68, its highest level to date. It started the year at a benchmark level of 100, and had fallen to a low of 75.1 in April.

Fluctuations in the Index, which is based on dealer surveys and the latest available economic data, are aimed at providing a snapshot of the relative vitality of the kitchen and bath market (see Editor's Note).

Among the weighted components comprising this month's Index were the following:

  • Surveyed kitchen and bath retailers reported an average of 18 prospects and seven sales for the month of March. The number of prospects was up 75.8% over the previous month and the number of sales up 8.3%.
  • Surveyed retailers also reported that the average price of a kitchen remodeling job booked during the month was $19,659, and the average price of a bathroom remodeling was $7,732. These marks are well below the higher numbers reported in February, indicating that medium- and low-end buyers were back in the market during March.
  • March kitchen cabinet sales were up 8.6% over March 2002 levels, states the latest "Trend of Business" survey from the Kitchen Cabinet Manufacturers Association (KCMA).
  • Kitchen appliance shipments rose 38.3% in March over February levels, to just under 4.43 million units, per the latest figures from the Association of Home Appliance Manufacturers (AHAM).
  • The Conference Board's Consumer Confidence Index reversed four months of declines and jumped to 81.0 (1985=100), up from 61.4 in March. The Expectations Index rose to 84.8 and the Present Situation Index improved to 75.3. Those rating present business conditions as "bad" declined to 23.7%, while those holding the opposite view rose to 16.2%.
  • Housing starts climbed 36.0% from the previous month to 149,700 units in March an 8.3% increase over March, of 2002, according to the Census Bureau. For the month, the seasonally adjusted annualized rate hit 1.78 million units. Through the first three months of the year, some 377,600 homes have been started, a 2.4% increase over the same period in 2002.
  • One hundred thousand new homes were sold in March, up 19.0% over February and up 11.1% over March, 2002, the National Association of Home Builders (NAHB) reported. That is a seasonally adjusted annualized rate of just over 1.01 million new homes.
  • Some 444,000 existing homes were sold in March, according to the National Association of Realtors. That was 28.7% ahead of February and 2.1% ahead of March, 2002, and translated to a seasonally adjusted annualized rate of 5.53 million homes sold.
  • Fixed-rate mortgages had hit a record low as of press time, with the 30-year average reported at 5.27%, according to the Mortgage Banker's Association of America. Mortgage applications jumped 14%. Mortgage refinancing continues at high levels, accounting for 68.7% of all mortgage activity.
  • Stocks associated with the kitchen and bath industry recorded strong gains in April

Market Analysis

With Iraq War Over, Analysts Bullish Over Housing Industry

Washington, DC Housing industry analysts are predicting significant improvement in market conditions, the National Association of Home Builders said. Commenting on the results of its recent semi-annual Construction Forecast Conference here, the Washington, DC-based NAHB projected sustained improvement beginning in the year's second half.
According to the NAHB, housing construction in 2003 will likely equal or even slightly surpass last year's 1.7 million units, with si ngle-family activity remaining especially strong and multi-family production receding only slightly.

The major reason for its optimism, the NAHB said, is that the Federal Reserve is "unlikely to increase interest rates until late in the year, or possibly not until early next year." As a result, long-term mortgage rates in 2003 termed "a powerful stimulant to the housing sector" should be about half a percentage point lower, on average, than they were in 2002, the trade association said.

Economists also noted that:

  • While conditions for refinancing remain favorable, the current refinancing boom should begin to taper off as the year progresses.
  • The annual rate of house price increases is tapering off in most of the country, and should eventually settle in at the 4-5% range, down from about double that in the past few years.
  • Media speculation about house-price "bubbles" will also fade as the economic recovery progresses.