Market Strong, But Off Record Highs

by WOHe

Market Strong, But Off Record Highs


Last year, as expected, proved to be a stellar year for the housing
and kitchen/bath markets, although the latest indicators while
still historically strong appear to be softening somewhat, as
economic woes and global uncertainties continue to linger. Among
the key statistics released by government agencies, research firms
and industry-related trade associations in recent weeks were the
following:

HOUSING STARTS
One of the few bright spots in the economy last year, housing is
expected to continue its strong performance throughout 2003, the
National Association of Home Builders said last month. “2002 was a
banner year for housing, with record new home sales and the highest
number of housing starts in 16 years,” said NAHB Chief Economist
David Seiders, citing final totals of about 976,000 new home sales
and some 1.7 million housing starts for 2002. Last year also saw
the largest number of single-family homes built in 24 years, and
the highest level of building permits issued since 1986. The
housing market will slow somewhat in 2003, but should still perform
well, Seiders said. “Basic market fundamentals such as strong
household formations, low interest rates and solid house price
performance should continue this year,” he said. The NAHB is
projecting a total of 942,000 new-home sales in 2003, a 3.4%
decline from last year. Housing starts should decline about 3.5%,
to 1.63 million units, the Washington, DC-based trade association
added. “While we’re expecting another very good year in 2003, some
gradual settling of the market is likely,” Seiders observed.

EXISTING-HOME SALES
Sales of existing single-family homes rose strongly in December,
while 2002 easily set a new annual record, the National Association
of Realtors reported. According to the Washington, DC-based NAR,
there were a total of 5.563 million existing-home sales in 2002, up
5% from the previous record of 5.296 million, set in 2001. David
Lereah, NAR’s chief economist, said a combination of favorable
market conditions has been contributing to record housing activity.
“Exceptionally low mortgage interest rates are the primary factor
in record levels of home sales,” he said. “Strong demand by
first-time home buyers, fueled by the children of the baby boom
generation and by immigration, along with a generally good job
market and growing families trading-up to larger homes, also has
been contributing to record home sales activity,” Lereah added. NAR
President Cathy Whatley said the momentum of home sales is expected
to remain strong. “With favorable affordability conditions and an
improving economy, home sales are projected to remain strong in
2003.”

APPLIANCE SHIPMENTS
As predicted throughout 2002, domestic shipments of major home
appliances established a new annual record last year, gaining 5.1%
over the previous year’s high, with total shipments reaching nearly
68 million units, the Association of Home Appliance Manufacturers
reported last month. According to the Washington, DC-based AHAM,
2002 ended with a total of 67.92 million appliances shipped in the
U.S., up from the 64.6 million units shipped in 2001.

CABINET & VANITY SALES
Sales of kitchen cabinets and bathroom vanities increased 10.8% in
2002 over a year earlier, the Kitchen Cabinet Manufacturers
Association said last month. The Reston, VA-based KCMA noted that
manufacturers participating in the association’s monthly “Trend of
Business” survey reported that cabinet sales gained 9.5% in
December of 2002 over the same month in 2001. Noted KCMA executive
v.p. Dick Titus, “Record low interest rates, the superior
performance of real estate investments and the post-9/11 desire to
spend more time at home have created strong

Market Posts Gain, K&BDN Index Reveals

The kitchen and bath industry continues to exhibit stability and
resilience even in the face of economic and global uncertainties,
according to a new monthly Index developed by Kitchen & Bath
Design News.

The “Kitchen & Bath Industry Performance Index,” unveiled
for the first time last month exclusively by K&BDN, reveals
that the kitchen and bath market improved this month from 30 days
earlier.
The Index registered 99.6 this month just a shade under the
benchmark of 100 established for January. By comparison, it
registered 95.2 in February.

Fluctuations in the Index, which is based on dealer surveys and
the latest available economic data, are aimed at providing a
regular glimpse at the relative vitality of the kitchen and bath
market (see Editor’s Note, below).

Among the weighted components in the March Index were the
following:

  • Surveyed kitchen and bath retailers reported an average of 14
    sales prospects and three sales for the month of December, 2002.
    Both were below November’s levels primarily as the result of normal
    seasonal differences. Survey respondents reported that the average
    price of a kitchen remodeling job booked during the month was
    $27,066, and that the average price of a bath remodeling job was
    $8,224.
     
  • The Consumer Confidence Index dipped slightly in December 2002,
    from levels 30 days earlier. Some 20.8% of consumers polled by The
    Conference Board in its monthly survey expected business conditions
    to improve in the next six months, while 11% expected conditions to
    get worse.
     
  • Sales of kitchen cabinets and bathroom vanities rose 9.5% in
    December 2002 over the same month a year earlier, and were up 10.8%
    for the full year. Although major home appliance shipments dipped
    slightly in December from the same month a year earlier, they were
    still 15.1% above November levels.
     
  • Unemployment remained at 6% in December. However, 20.2% of the
    consumers in the Consumer Confidence survey expected fewer jobs in
    the coming six months, an increase over the previous month, while
    only 15.1% anticipated more.
     
  • Aggregate stock prices for firms involved in the kitchen and
    bath industry lost ground in January, 2003, as investors continued
    to be uncertain and skittish (see related StockWatch, Page
    10).
     
  • Housing starts in December were slightly below November’s
    totals, but the seasonally adjusted rate of starts was 15.9% above
    the pace for December, 2001. There were just over 1.7 million
    housing starts in 2002, 6.4% above 2001 levels. Building permits
    were up 6.3% from November to December, and ended the year 5.5%
    above 2001, at nearly 1.73 million permits issued.
     
  • Existing-home sales jumped 5.8% from November to December and
    ended the year up 5.0% at 5.56 million units sold. New homes sold
    dipped slightly but still ended the year up 7.0%, at a new record
    976,000 units.
     
  • The national average commitment for a 30-year, conventional,
    fixed rate mortgage at press time was 5.88%.
     
  • Lowe’s announced it expects a 16%-17% sales increase and a
    2%-4% gain in same-store sales in the fourth quarter of 2002. At
    Home Depot, however, sales projections for 2003 were lowered to a
    9%-12% increase from earlier estimated gains of 15%-18%.

Editor’s Note: Kitchen & Bath Design News’ Kitchen &
Bath Industry Monthly Performance Index,” introduced last month, is
aimed at providing an ongoing comparative measurement of
kitchen/bath market vitality.

K&BDN developed the new Index based on a number of key
economic and business performance components. Weighted scores for
each of those components have then been used to calculate the
Index, which was set for benchmark purposes at 100 for January.

Future fluctuations in the Index will be compared to the
benchmark number posted in January.

The largest component of the Index consists of confidential
monthly reports from surveyed kitchen and bath retailers on their
levels of sales floor traffic and signed contracts, as well as
their average kitchen and bath prices.

Other components of the Index include the latest available
statistics on key economic indicators. Among them: housing starts,
building permits, new- and existing home sales, mortgage rates,
cabinet sales, appliance shipments, consumer confidence ratings and
unemployment levels. Also included in the Index are the performance
of major industry-related stocks, and home center sales.

Market Analysis

Surveys: Remodeling Outlook Positive, Despite Softening
in Market

Washington, DC Professional remodeling “switched into lower
gear” at the end of 2002, as residential property owners
temporarily postponed significant additions and improvements in
response to weaker economic conditions and seasonal factors. At the
same time, builder confidence in the market for new single-family
homes remained “quite strong,” despite an array of generally weak
economic indicators, including weakness in job growth and consumer
confidence.

That’s the word from the National Association of Home Builders,
which last month released the latest in a series of surveys about
production trends, conditions and future expectations for the
remodeling and new construction markets.

The Washington, DC-based NAHB reported that its monthly
Remodeling Market Index (RMI) “fell substantially” in the fourth
quarter of 2002 compared to the previous quarter, although
year-over-year comparisons reveal more marginal declines.

The association’s latest Housing Market Index (HMI) fell one
point in January, from its two-year high the previous month, the
NAHB said, noting that, while overall conditions remain positive,
“lingering concerns about the economy are keeping builders’
optimism in check.”

“What is encouraging is that the vast majority of remodelers
surveyed for the RMI are expecting solid dollar volumes and profit
margins in 2003,” added Bill Owens, CGR, chairman of the NAHB
Remodelors’ Council..

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