Forecasts Favorable For Key Indicators

by WOHe

Forecasts Favorable For Key
Indicators


Conditions remain favorable for the housing and related
kitchen/bath markets to continue their growth curve into 2003,
assuming no major global catastrophes or a total stock market
meltdown, according to preliminary forecasts for new construction,
residential remodeling and shipments of key products. Among the key
statistics released by government agencies, research firms and
industry-related trade associations in recent weeks were the
following:

HOUSING STARTS & HOME SALES
The economic and financial market environment, along with favorable
underlying demographics, “will support a healthy housing market” in
2003, the National Association of Home Builders predicted last
month. The Washington, DC-based NAHB forecast that sales of new and
existing homes will be close to record levels, and starts of
conventionally built homes will remain about 1.6 million units,
with nearly 1.3 of those single-family homes. Residential
remodeling “also will be strong,” posting real (inflation-adjusted)
growth of at least 2%, the NAHB observed. “While 2002 [has been] an
economic adventure fraught with challenges, the economic
environment should be much more straightforward in 2003,” the NAHB
commented.

PLUMBING PRODUCTS SHIPMENTS
Demand for plumbing products in the U.S., “driven by increasing
applications in repair and improvement markets,” is forecast to
increase 3.1% per year through 2006, to a level of $9.8 billion
annually, according to the latest projections by a major industrial
market research firm. The Cleveland, OH-based company, The
Freedonia Group, said last month that sluggish growth in new
housing over the next three years will be offset by activity in
residential and non-residential remodeling, as well as by
“continuing trends toward larger bathrooms and kitchens in new
residential construction” (see graph above). Demand for plumbing
fixtures is projected to reach $4.75 billion in 2006, spurred by
gains in high-value fixtures appealing to higher-income consumers,
The Freedonia Group noted. “For example, bathtub and shower fixture
demand will be boosted by growth in whirlpool baths and in
integrated shower systems,” said the research firm. At the same
time, plumbing fittings demand is expected to exceed $5 billion by
2006, the researchers said. “Lavatory, kitchen and other sink
fittings will enjoy above-average growth, aided by kitchen
renovations and additions of bathrooms,” The Freedonia Group
observed.

CABINET & VANITY SALES
Despite “sinking consumer confidence” fueled by a dwindling stock
market, threats of war and continuing disclosures of corporate
fraud, “real estate investments are performing well and homeowners
understand the continued value of kitchen and bath remodeling,”
according to Dick Titus, executive director of the Kitchen Cabinet
Manufacturers Association. Titus made his comments last month,
after the Reston, VA-based KCMA reported that sales of kitchen
cabinets and bathroom vanities were up 11.4 percent in the second
quarter of 2002 compared to the same three-month period in 2001,
with stock cabinet sales up 13% and custom cabinet sales up 4% for
the quarter.

Market Analysis

Mortgage Rate ‘Honeymoon’ Seen Coming to End, Realtors
Assert

Washington, DC Mortgage rates may be at their lowest level in
decades, but that’s not a situation that will last forever, a
leading economist for the National Association of Realtors
predicted last month.\

And, if the nation’s housing market is to remain healthy and
stable, other economic factors aside from mortgage rates alone will
have to prevail, the NAR economist pointed out.

The average rate on a 30-year mortgage edged below 6% in late
September for the first time since the 1960s, continuing to
stimulate record levels of home sales and unleashing the greatest
torrent of home refinancing ever.

However, Lawrence Yun, senior forecast economist for the
Washington, DC-based NAR, said that the association’s forecast for
interest rates is “upward” based on projected steady economic
expansion, higher corporate profits, and an eventual move by the
Federal Reserve to curb inflation by hiking short-term rates.

Yun cautioned, moreover, that since current mortgage rates “have
very little room to move downward,” the next major impetus to
housing demand must come from two byproducts of an improving
economy: job creation that results from business spending, coupled
with a rise in consumer confidence.

Yun noted, as evidence, the fact that home price appreciation is
easily outrunning income growth a misalignment that can cut into
future housing affordability conditions.

“Economic growth is coming at a critical point for housing,” Yun
observed. “The magical influence of low mortgage rates can no
longer be counted on alone to keep housing activity at its current
record-setting levels. A solid economic growth from this point
onward is vital in keeping housing demand alive.”

The NAR is projecting 2003 new- and existing home sales to
remain at about their current, high levels. The trade association
also said it sees continued “attractive” mortgage rates although
slightly rising keeping the housing market “at a sustainable
pace.”

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