Signs Evident For 'Soft Landing'

Signs Evident For 'Soft Landing'

Housing starts and both new- and existing-home sales, among the key economic factors affecting the kitchen/bath market, all began their anticipated minor retreat as the first quarter got underway pointing toward a solid, but slightly off, year for the interest-rate-sensitive kitchen and bath industry.

Among the key statistics released by government agencies and industry-related trade associations in recent weeks were the following:

Existing-Home Sales
Existing-home sales, dampened by recent rises in mortgage rates, fell in January, declining 10.7% from their "exceptional" December 1999 pace of 5.14 million units to a seasonally adjusted annual rate of 4.59 million units, the National Association of Realtors reported. According to the Washington, DC-based NAR, the sales slowdown resulted primarily from tight inventories, unfavorable weather conditions and a series of mortgage-rate hikes "that have caused the market to settle into a less hectic pace." On a year-to-year basis, home resales were reported down 10% from January 1999. Despite the decline, the NAR said that the housing market "remains robust."

Cabinet & Vanity Sales
Sales of kitchen cabinets and bathroom vanities rose once again in February, increasing 12.3% over sales during the same month in 1999, according to the Kitchen Cabinet Manufacturers Association. The Reston, VA-based KCMA said that manufacturers participating in the association's monthly "Trend of Business" survey reported that year-to-date sales for the first two months of 2000 show an increase of 12.5% over January-February of '99, with stock cabinet sales up by 12.6% and sales of custom cabinets up by 12.1%.

Appliance Shipments
Domestic shipments of major home appliances continued their impressive rise in March, gaining 22% over the shipments of March, 1999, the Association of Home Appliance Manufacturers reported. According to AHAM, year-to-date shipments through March were running 14.6% over the same three-month period in '99.

Housing Starts
The effects of higher mortgage rates "are starting to be felt in the single-family housing market," the National Association of Home Builders reported last month. The Washington, DC-based NAHB noted that while multi-family housing starts have risen in recent months, single-family production is off as are housing permits, an indicator of future housing-start activity. Single-family housing starts in 2000 are being forecast to decline 4.6% from last year's robust pace, although the full year is expected to represent nothing worse than a "soft landing" for housing, the NAHB said. Housing starts dropped 11.2% in March, the largest monthly decline in six years.

market pulse/business conditions

With few exceptions, dealers this year have been experiencing a renaissance of business, and expect the trend to continue for the remainder of the year. In fact, most of the dealers recently interviewed by Kitchen & Bath Design News have met or exceeded their first quarter goals.
Construction has been noted as the primary reason for this success. The dealers K&BDN spoke to do believe that customers are more knowledgeable and are aware of the custom products they want in their new kitchens and baths. 

Following, dealers interviewed by K&BDN associate editor John Filippelli share their thoughts about current business conditions:

"The year is going really well. Business conditions are still very favorable. I think we are seeing growth in the market because people are moving in from out of state and there is a lot of construction going on. Mostly there are nuclear families moving, which doesn't really cause any unique challenges. People are looking for larger homes [and larger] kitchens and baths. I think the year will end up just as strong as last year and I see more remodeling in the next year or two because of the new construction."
Michael Doser
Quality Kitchen and Bath Colorado Springs, CO

"The year is going okay. We are too small to effectively compete with the big-box businesses in kitchen cabinets. There is another dealership is Dayton with a much larger showroom."
Ben Olive
Castle Kitchens Inc.
Miamisburg, OH

"The year is going great. This is a great time for new products to come out to market, having something trendy and new to offer clients. Things have been very strong. Most of our leads come through the Internet [our Web site] or direct mail."
Reid Sellgren 
New Home Bath & Mirror Woodbury, MN

"The year has been overwhelming so far because the economy is so good. We deal in a lot of expensive custom homes, houses that range from $500,000 to $3 million. It's mostly 30-somethings moving into Colorado. Since the business conditions are more favorable, we are getting into a more custom market. The rest of the year will depend on the interest rates. I see things being very, very good through June  much better than last year."
Linda Pfaff 
The Kitchen Showcase Inc. 
Engelwood, CO

"The year is going fantastic. We have been busy all year. There is a tremendous amount of construction right now because the economy in our area is very good. Business conditions are still favorable. I'd say it's more of the professional family moving into the area. Everyone is upgrading to a better quality product. We show that to be true for us. People are more well informed and we are selling better quality products. I believe overall the industry will slowly rise and do very well. If the first quarter is any indication, we will have a very good year."
Linda Brooks 
Acorn Kitchen & Bath
Pontiac, MI

"The year is going great. It seems to be an extension of last year it doesn't get any better than that. The economy is very good. People are constantly getting additions. A lot of new construction, new lots it's just very active. The business conditions are very, very favorable. I don't see any immediate slowdown." 
Jerry Weed, CKD
Kitchen and Bath Studios Inc. 
Chevy Chase, MD

Remodeling Seen Remaining Strong
Franklin, WI A healthy economy, a population increase, an aging housing stock and a record level of homeownership will result in 2000 being the remodeling industry's "best year yet," the president of the National Association of the Remodeling Industry predicted last month.
NARI president Ken Skowronski, CR, owner of KS Remodelers here, said that NARI is forecasting residential remodeling to reach a record $140 billion in 2000. He pointed to a series of economic and demographic factors including favorable interest rates, low unemployment and a rise in household income as key forces underlying projected growth.

"Household incomes are on the rise, resulting in more discretionary monies, and homeowners are realizing the value of investing in their residences," Skowronski said. Some 25 million U.S. homeowners undertake at least one home improvement project per year, NARI said and that should increase with the current high rate of homeownership (see related graph, Page 9). There are currently about 120 million housing units in the U.S., representing an estimated $8 trillion, NARI added.