Market Slowdown Seen as Temporary

by WOHe

Market Slowdown Seen as

Unusually poor weather across much of the nation,
combined with lingering economic weakness and the war in Iraq,
contributed to a first-quarter slowdown in housing and related
markets. Nevertheless, market fundamentals remain solid and 2003
should prove to be a positive year from a historical perspective,
according to the latest round of economic indicators. Among the key
statistics released by government agencies, research firms and
industry-related trade associations in recent weeks were the

Despite a February slowdown in housing starts, market fundamentals
remain solid and housing continues to perform well by historical
standards, said NAHB chief economist David Seiders. “Given the
strong permit numbers we’re seeing, the tight inventory situation,
healthy house-price performance and especially the favorable
interest-rate picture, home builders are in a good position to pick
up the pace of housing production as today’s economic and political
uncertainties head toward resolution. Assuming the best scenarios
of a decisive and relatively quick end to the dispute in Iraq and
an anticipated fiscal stimulus package, we’re still looking at a
year-end housing production figure very close to last year’s
exceptional 1.7 million units,” Seiders said. However, jitters over
the war in Iraq, weakness in the national economy and job market,
and worse-than-normal weather conditions took a toll on home
builders’ confidence in early March, the NAHB reported. “Builder
confidence took a substantial hit [in March], but there is
certainly no sense of panic among single-family builders
particularly in view of the support being provided by falling
mortgage rates and still-healthy appreciation of house values. It’s
more a sense of needing to be cautious heading forward,” Seiders

Sales of kitchen cabinets and bathroom vanities increased 11.6% in
February 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
associ-ation’s monthly “Trend of Business” survey reported that
year-to-date sales through February were up 10.2% over sales during
the same two-month period last year.

Sales of new homes, slowed in February by bad weather, are still
expected to approximate last year’s record levels, the National
Association of Home Builders said last month. At the same time,
sales of existing single-family homes, while also off in February,
were still at the fourth-highest pace since record-keeping began in
1968, according to the National Association of Realtors. With bad
weather added to uncertainties about the economy and the war in
Iraq, consumers “were understandably more cautious” about buying
new homes in February, said NAHB president Kent Conine. “But both
of those factors are only temporary, and we expect to make up for
the recent slippage in sales later this year,” Conine said.
New-home sales in February “actually were quite good by historical
standards,” said NAHB Chief Economist David Seiders, “but they look
disappointing when compared with the second half of 2002, which
boasted the strongest run of home sales ever seen.” Despite their
slowdown in the first quarter, Seiders said that the housing
industry remains on track to reach 972,000 new single-family sales
this year, which would be down less than 1% from the record pace of
2002. Existing-home sales dipped 4.3% in February, to a
seasonally-adjusted annual rate of 5.84 million units, but were
still 1.2% higher than the 5.77-million unit pace of February 2002.
Other months with higher sales levels were in January and December
of 2002. “After reaching an unprecedented level in January, it was
no surprise to see existing-home sales drop in February,” said
chief economist David Lereah. “A disruption in normal buying
patterns, resulting from large areas of the country being buried in
snow for days on end, may show in later data. Even so, generally
strong sales are expected this year, assuming the war in Iraq is
not prolonged.”

Domestic shipments of major home appliances gained ground in
February, after opening 2003 down somewhat from last year’s record
pace, the Association of Home Appliance Manufacturers reported last
month. According to the Washington, DC-based AHAM, appliance
shipments totaled 5.47 million units in February, up 7.8% over the
shipments posted in the same month a year earlier. Year-to-date
shipments through February were up 3.1% over the same two-month
period in ’02, AHAM said. The latest forecast projects that some
69.3 million appliances will be shipped in 2003, up from the record
shipment totals of 67.9 million units last year.

K&BDN Monthly Index Posts

After dropping significantly last month, the
“Kitchen & Bath Industry Performance Index” improved slightly
this month an indicator that industry activity may pick up again as
the weather grows warmer.

The “Kitchen & Bath Industry Performance Index”
an exclusive monthly Index developed by K&BDN and introduced in
January rose this month to 79.34. It started the year at a
benchmark level of 100, and had fallen to a low of 75.1 in April,
as showroom prospects, appliance shipments, existing home sales and
building permits lagged previous months’ levels.

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/bath
market (see Editor’s Note, below).

While much of the recent weakness in the market has
been tied to the conflict in the Mideast, some analysts warn that
even a fast and decisive resolution of the war with Iraq might not
produce more than a short-lived boost. Of far more long-term
importance for a true recovery, they point out, are economic
fundamentals and a rise in consumer confidence.

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

  • Surveyed kitchen and bath retailers reported an
    average of ten prospects and six sales closed for the month of
    February, 2003. Both marks were down slightly from January
    averages. Survey respondents reported that the average price of a
    kitchen remodeling job booked during the month was $49,052, and
    that the average price of a bath remodeling was $17,313. Both of
    those marks were above the January reported average, and indicate
    that the strongest side of the market is the high-end niche.

  • Sales of kitchen cabinets and bathroom vanities
    rose 11.6% in February over the same month a year earlier, with
    semi-custom sales up 68.1%, custom sales up 3.9.% and stock cabinet
    sales down 9.2%.

    Domestic shipments of kitchen appliances rebounded sharply, with
    3.2 million units shipped during February, up 1.9% from February of
    2002 and up 35.7% from January of this year.

  • The Conference Board’s Consumer Confidence Index,
    which declined sharply last month, fell again in March. The Index
    now stands at 62.5 (1985=100), down from 64.8 in February.
    Consumers’ appraisal of the current business environment mirrored
    the previous month’s readings.

  • Unemployment held steady in March, at 5.8%.

  • Housing starts dipped 8.1% during February
    although, for the month, the seasonally adjusted annualized rate
    topped a robust 1.6 million units. Through the first two months of
    the year, 225,600 new homes have been started, down 2.3% from last

  • Existing-home sales for February totaled 345,000
    units, down 0.6% from January but up 1.5% over February of

  • New home sales hit 75,000 units during February, up
    7.1% from January but down 10.7% from February, 2002.

  • The national average commitment for a 30-year,
    conventional, fixed rate mortgage at press time was 5.79%.
    According to the Mortgage Bankers Association of America, mortgage
    applications had dipped 17% during the latest reporting period, and
    refinancing rates had fallen 20%, but both measures remained
    relatively high.


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