New Year Seen Off to Solid Start

by WOHe

New Year Seen Off to Solid Start

The new year is starting off where the previous year ended, with
signs of continued strength in the housing and related kitchen/bath
markets. Among the key statistics released by government agencies,
research firms and industry-related trade associations in recent
weeks were:

Continuing low mortgage rates and improving consumer sentiment were
driving demand for new homes, the National Association of Home
Builders reported. The association’s latest Housing Market Index
(HMI), a monthly gauge of builder sentiment, registered 65 its
highest level since November of 2000, the Washington, DC-based NAHB
said. “Builders could hardly be more pleased with the sound
fundamentals of the market for new single-family homes,” observed
NAHB president Gary Garczynski. The HMI is derived from a monthly
survey of builders that NAHB has been conducting for nearly 20
years. Builders are asked to rate current sales of single-family
homes, as well as sales expectations for the next six months. They
are also asked to rate traffic of prospective buyers. Scores for
responses to each component are used to calculate a seasonally
adjusted index, where any number over 50 indicates that more
builders view sales conditions as good instead of poor.

After setting records in 2001 and 2002, home sales are projected to
slip, but remain historically strong this year, according to chief
economist for the National Association of Realtors. David Lereah
said last month that the housing market has continued to perform
better than expected, largely in response to the low level of
mortgage interest rates. “We now expect existing-home sales to
total 5.52 million units in 2002, up 4.2% from last year’s record
of 5.30 million,” Lereah said. In 2003 sales should “ease off” to
5.29 million units, Lereah added but that would be just shy of the
2001 record, and it would be the fifth year that existing-home
sales exceeded the five million benchmark. New-home sales were
forecast to rise 5.6% to a record of 960,000 units in 2002, then
ease in 2003 to 924,000 units, making this year the second highest
on record, Lereah said. He added that he expects the 30-year fixed
mortgage interest rate to rise gradually to 6.8% by the end of this

Sales of kitchen cabinets and bathroom vanities increased 6.4% in
November of 2002 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
association’s monthly “Trend of Business” survey reported that
stock cabinet sales were up 5.2% in November, while semi-custom
cabinet sales rose 8.4% and custom cabinet sales gained 9.2%.
Year-to-date sales from January through November of 2002 were up
11.3% over the same 11-month period in the previous year, the KCMA

Domestic shipments of major home appliances are expected to set
another record in 2003, topping the record set year last year, the
Association of Home Appliance Manufacturers forecast last month.
According to the latest forecast issued by the Washington, DC-based
AHAM, some 68.75 million appliances are expected to be shipped in
2003, up from the 67.69 million units that were shipped last year.
Prior to 2002 the highest total for appliance shipments was posted
in 2000, when just under 65 million appliances were shipped, AHAM
said. Projections for 2003 call for gains in virtually all product
categories, including cooking (22.58 million units projected in
’03, up from 22.27 million units in ’02); kitchen clean-up (11.96
million units projected in ’03, up from 11.29 million units in
’02); and food-preservation appliances (12.19 million units
projected in ’03, up from 11.52 million units in ’02), AHAM

New Index Off From January Benchmark

The kitchen and bath industry, which has exhibited remarkable
resiliency and strength throughout the worst of the nation’s
economic woes, may be finally showing some signs of softening a
bit, according to a new monthly Index developed exclusively by
Kitchen & Bath Design News.

The “Kitchen & Bath Industry Monthly Performance Index,”
unveiled for the first time by K&BDN in this month’s issue,
reveals that the kitchen and bath market based on dealer surveys
and the latest available economic data declined this month from the
levels it had posted 30 days ago.

The Index was 100 in January 2003; by comparison, it registered
95.2 this month.

Fluctuations in the Index as the year progresses will provide
K&BDN readers with a glimpse into the on-going vitality of the
market (see Editor’s Note, below).

Among the weighted components comprising the February 2003 Index
were the following:

  • Surveyed kitchen and bath retailers reported an average of 19
    sales prospects, and five sales for the month of November 2002.
    Both numbers show a marked difference from October ’02 levels in
    part, because of expected seasonal differences.
  • The Consumer Confidence Index indicated that consumer
    expectations have improved in November of 2002 compared to
    October’s readings. Those consumers anticipating an improvement in
    business conditions in the next six months have increased, while
    the number of those expecting conditions to deteriorate have
  • The employment outlook was also more favorable, according to
    the latest numbers. The number of consumers who are expecting fewer
    jobs over the next six months has declined, while those
    anticipating more jobs held steady. Income expectations were also
    significantly more optimistic.
  • Aggregate stock prices for firms involved in the kitchen and
    bath lost ground during December of 2002, as investors seemed
    rattled by geopolitical tensions and disappointing forecasts for
    corporate earnings (see StockWatch, Page 10).
  • Sales of kitchen cabinets and bathroom vanities increased
    November of 2002 compared to the same month a year earlier. At the
    same time, appliance shipments remained robust at year-end 2002,
    and were poised to continue their record-breaking pace throughout
    this year.
  • Housing starts in November of 2002, while down from a month
    earlier, were well ahead of the pace set during the same month the
    previous year. Building permits, however, were significantly down,
    with 2003 seen as a year in which overall housing starts are
    expected to decrease.
  • According to the Index, rates for new- and existing-home sales
    were at, or near, record levels.
  • The national average commitment rate for a
    30-year, conventional, fixed-rate mortgage was under 7% last
  • The two largest home center chains posted healthy sales
    increases during the third quarter of 2002. Home Depot sales jumped
    8.9% in that period to $14.48 billion, while Lowe’s sales were up
    17.6% to $6.41 billion. However, Wickes sales dipped 19.6% in the
    third quarter to $237.3 million.

Editor’s Note: Kitchen & Bath Design News this month
introduces an exclusive new feature the “Kitchen & Bath
Industry Monthly Performance Index” aimed at providing an on-going
comparative measurement of kitchen/bath market vitality.

K&BDN has 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 has been set for benchmark purposes at 100 for January
of 2003. 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

Remodelers Slightly Less Busy, and Less Optimistic, New Survey

Washington, DC Residential remodelers, who have been generally
busy despite the soft U.S. economy, were less bullish about the
overall business climate at the end of 2002 than at virtually any
point in the past two years.

This is according to the latest Remodeling Market Index (RMI), a
series of quarterly reports issued by the National Association of
Home Builders. Remodelers’ assessments of current market
conditions, as well as future expectations, were down from levels
posted throughout 2001 and ’02. The RMI, based on the responses of
some 600 remodelers, measures both current market conditions and
future expectations based on such factors as the amount of work
committed for the next three months, appointments for proposals and
the backlog of remodeling jobs.

The latest RMI on current market conditions, released in the
fourth quarter of 2002, was 49.3, off from 52.7 the previous two
quarters, and from 55+ levels in the first two quarters of 2001,
according to the Washington, DC-based NAHB.

It was the lowest level for the RMI since the post-Sept. 11
attacks, when the RMI dropped to 45, the trade association

The latest RMI for future expectations revealed a level of 48.0,
off from 52.2 in the second quarter of 2002 and from 57+ levels in
the first two quarters of 2001.

Market Analysis

U.S. Housing Market Seen Varying Widely by Region in

Washington, DC The U.S. housing market, coming off unsustainably
high levels in 2002, will witness a decline in housing starts this
year although the pattern of starts will vary by state, depending
on regional conditions.

That’s the view of Stanley Duobinis, director of forecasting for
the Washington, DC-based National Association of Home Builders.
Addressing representatives of the building products industry at the
NAHB’s recent Semi-Annual Construction Conference here, Duobinis
forecast that the housing industry “will see both growing housing
markets and declining ones in 2003, just as we did in 2002.”

The most active markets continue to be in the Southeast and
West, with some notable weakness among some “high-tech” states,
Duobinis said, noting that local housing demand “is a function of
local household creation, as well as special factors such as second
home demand.”

“And, household creation depends on job creation,” he said.
“Ultimately, high rates of job creation translate into good housing

Although the recession “has been over for a while and the number
of states seeing year-over-year job growth is growing, that growth
is still ‘sluggish,’ ” Duobinis pointed out, noting that, from
September of 2001 to September of 2002, employment grew in just 14

The most rapidly-expanding housing states from September 2001 to
September 2002 included Nevada, Arizona, Kentucky, Montana,
Oklahoma, Rhode Island, Wisconsin, New Mexico, Florida and Texas.
Among the weakest states over the same time span were Utah,
Colorado, Georgia, Missouri and Washington.

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