Growth Seen, But Pace Slows

by WOHe

Growth Seen, But Pace Slows

The kitchen/bath and housing industries continued to post
positive results as the second quarter of 2002 unfolded, although
some moderation was being witnessed for several key indicators that
were previously reaching levels considered to be unsustainable.
Among the key statistics released by government agencies and
industry-related trade associations in recent weeks were the

Housing Production
Despite some anticipated “downward adjustment” in housing
production, the latest nationwide surveys of single-family builders
reveal “no shortfall in buyer demand or builder confidence,” with
housing starts still on track to reach slightly higher levels than
the 1.6 million units built last year, said Gary Garczynski,
president of the Washington, DC-based National Association of Home
Builders (NAHB). Garczynski attributed the housing sector’s
strength thus far this year primarily to low interest rates,
positive house price movements and unseasonably good weather
conditions. “With interest rates on long-term mortgages still below
7%, and with the economy on a recovery path, the market for new
homes is in very good shape,” added NAHB chief economist David
Seiders, who also forecast “strong and stable” new-home sales
through the balance of 2002. Seiders said the NAHB is currently
projecting new-home sales of 903,000 units for this year, down only
slightly from last year’s record 908,000 units.

Existing-Home Sales
The recent decline in existing-home sales was anticipated, coming
as it did off several record months of resales, but the current
pace of home sales activity is still well above historic norms,
according to the National Association of Realtors, also based in
Washington, DC. NAR reported last month that the 6-million-plus
level of resales posted in January slid to a seasonally adjusted
annual rate of 5.4 million units in March, and should continue to
slip to a more “sustainable” pace as the year progresses. Final
numbers for the year, however, should make 2002 one of the best
year for existing-homes on record, the NAR said. The trade
association also reported that the national median sales price for
an existing single-family home rose to $153,000 in March, an
increase of 6.7% over the same month a year earlier, as home values
continue to escalate (see related story at right).

Cabinet & Vanity Sales
Sales of kitchen cabinets and bathroom vanities gained ground once
again in April, according to the Kitchen Cabinet Manufacturers
Association. The Reston, VA-based KCMA noted that manufacturers
participating in the association’s monthly “Trend of Business”
survey reported that cabinet sales in April rose 12.5% over those
in April of 2002. Year-to-date sales from January through April
were 10.8% over those of the same four-month period a year earlier,
with stock cabinet sales up by 12.6% and custom cabinet sales up by
2.7%, the KCMA noted.

Market Analysis

No ‘Bubble’ Foreseen in Home Prices, NAR

Washington, DC Despite considerable attention from the mass
media, there is no tangible evidence of a price “bubble” bursting,
sending home values plunging from the steadily ascending levels
they’ve achieved in recent years, the National Association of
Realtors said last month.

According to the Washington, DC-based NAR, the
supply-versus-demand formula the trade association uses to assess
the housing market indicates no imminent price bubble, even though
the average price of homes has risen significantly even
dramatically, in some markets over the past several years.

The national median sales price for an existing single-family
home rose to $153,000 in March, an increase of 6.7% over the same
month a year earlier. Moreover, many housing markets have witnessed
solid double-digit gains in home prices, despite overall economic
softness and the uncertainties wrought by world events.

While demand remains high largely due to low interest rates the
supply of existing single-family homes “is very low,” observed NAR
senior forecast economist Lawrence Yun. According to Yun, current
supply levels for existing single-family homes are at five months,
compared to an average of six months in the 1990s and eight months
the 1980s.

Another way to view the market, Yun pointed out, is to note if
home prices have far outpaced family income. “From 1975 to 2001,
the ratio of median home price to family income has been in the
fairly tight range of 2.54 to 2.96, with a long-term average of
2.75,” Yun said. “In 2001, even with the run-up in home prices, the
ratio was 2.80, well within the historical range.”

Yun added that “it is comforting to know” that home prices have
not declined year to year since the NAR began tracking data in

“There is no housing bubble period,” he concluded.

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