2001 Concludes On Favorable Note

2001 Concludes On Favorable Note

Existing-Home Sales
Despite a slowdown in the fourth quarter of 2001 expected by economists in the wake of the Sept. 11 terrorist attacks total existing-home sales for 2001 are expected to total just under 5.2 million an increase of 1.3% from 2000, the National Association of Realtors said last month. That would make 2001 the second-highest year on record for resales, trailing only the 5.205 million existing homes sold in 1999, according to the Washington, DC-based NAR. "Our economy continues to operate in a low inflation/low interest rate environment, providing a favorable backdrop for homebuying," said NAR chief economist David Lereah. "The fall-off in economic activity can be attributed to other factors such as a collapse in the technology sector, a dramatic loss of wealth in the equities market, a contraction in the manufacturing sector, and the negative consequences of the attack on America. Commenting that the "fundamentals for the housing sector continue to be favorable, Lereah predicted that the current recession will be "shallow and short-lived" and that there is "a high probability that the demand for housing will be strong and healthy by early next year."

Cabinet & Vanity Sales
Sales of kitchen cabinets and bathroom vanities, continuing to demonstrate strength in the face of a recessionary economy, increased 11.9% in October of 2001 over sales in the same month a year earlier, according to the Kitchen Cabinet Manufacturers Association. The increase represented the first double-digit gain in monthly growth since last May. The Reston, VA-based KCMA also noted last month that manufacturers participating in the association's monthly "Trend of Business" survey reported that year-to-date cabinet sales through the first ten months of 2001 were up 6.5% over those of the same January-October time period in 2000. Year-to-date sales of custom cabinets were up 8.5%, while sales of stock cabinets were up 6.1%, the KCMA reported.

Decorative Overlay Shipments
There will be an easing in the growth of shipments of decorative overlays over near-term, but, that will be followed by "strong upward growth over the coming decade." That was the forecast issued late last year by George Carter & Affiliates (GC&A), a leading market research firm specializing in the wood products industry. The GC&A forecast covers North American overlay and substrate volumes, and details the shipments of particleboard and MDF that are used for kitchen and bath cabinets, among other products. The forecast also examines trends for high-pressure laminate (including laminate flooring), thermofused melamine saturated papers, decorative foils, low-basis-weight papers and vinyl films. The forecast for all overlays anticipates a gain of 48% between 2001 and 2010, said the Hillsdale, NJ-based GC&A adding that, by that time, North American decorative overlay volume will be more than 22 billion sq. ft. This "impressive growth" will be driven by saturated papers (76%), decorative foils (52%), and low-basis-weight papers (50%), the research firm predicted. "On the other hand, shipments will ease slightly over the next few years due to the current economic slowdown," commented GC&A. "Growth will also falter in 2005 in the face of another pull-back in the economy. But in both cases, any losses will be slight as decorative overlays typically gain market share at the expense of other finishing materials in difficult economic times." GC&A also offered a positive outlook for laminate flooring. Laminate flooring has been one of the hottest new product introductions ever, rising to more than 400 million sq. ft. of product by 2001. Estimates are for the volume of laminate flooring to surpass 800 million sq. ft. of material within the next 10 years, GC&A observed.

Market Analysis

Growth in Home Prices Seen Slowing

Washington, DC Home prices will continue to appreciate in the foreseeable future but nowhere near the recent rate of growth, economists and housing analysts said here late last year.

Speaking at the recent Semiannual Construction Forecast Conference, sponsored by the National Association of Home Builders, both Fannie Mae chief economist David Berson and Freddie Mac Deputy chief economist Frank Nothaft addressed the question of whether house prices are headed for a fall as the economy weakens. They concurred that home appreciation will decline to a rate of about 2.5 to 3% in 2002 down from an average 8% for the last year.

"But that's still a comfortable margin above zero," Berson observed.

"Will home values crash? Absolutely not," said Nothaft. "House-price growth will slow, but mitigating factors such as fiscal and monetary stimulus measures and continuing low inflation and interest rates will keep things from getting out of hand. Our view is that housing markets across the country are very well balanced."

Berson and Nothaft also credited the very favorable inventory situation in the home building sector for their confidence that no market glut is forthcoming.

"New-home inventories are exceedingly lean," noted Nothaft, adding that little speculative building is taking place. "Right now there is no evidence of overbuilding which is far from what was the case when we entered the last recession in 1990," he further stated.