Uncertainty Seen Stunting Housing Growth

by bkrigbaum@solagroup.com

Access to credit coupled with continued uncertainty among both consumers and homebuilders continue to stunt growth in the housing market and related kitchen/bath industry, experts are saying. Among the key statistics and forecasts released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

U.S. housing production continues “to bounce along the bottom near historic lows,” and is only running “at a level necessary to replace dilapidated or destroyed units,” according to the National Association of Home Builders. The Washington, DC-based NAHB said last month that while recent upward movement for housing starts represents “somewhat good news,” home builders, like consumers, “remain very concerned about the pace of economic growth and are awaiting signs of improvement” before moving forward with new projects. “The relative bright spot in new-home construction is on the multi-family side,” said NAHB chief economist David Crowe, adding that access to credit “remains a limiting factor” for new construction.

Current levels of existing-home sales indicate “a very slow pace of broader economic activity,” although the pace of sales activity in the second half of 2011 “is expected to be stronger than the first half, and will be much stronger than the second half of last year,” the National Association of Realtors said last month. According to Lawrence Yun, chief economist for the Washington, DC-based NAR, resales – which are running more than 15% below last year’s pace, based on the latest numbers – are being constrained primarily by the lack of a home buyer tax credit, as was in place last year, as well as financing problems. “Even with recent economic softness, home sales (are) being held back by overly restrictive loan underwriting standards,” Yun said. “There’s been a pendulum swing from very loose standards, which led to the housing boom, to unnecessarily restrictive practices as an overreaction to the housing correction. This overreaction is clearly holding back the recovery.”

Domestic shipments of major home appliances continued their downward spiral in 2011, declining again in May compared to the same month a year earlier, according to the Association of Home Appliance Manufacturers. The Washington, DC-based AHAM reported last month that May appliance shipments totaled 5.28 million units, down 5.6% from the 5.59 million units shipped during May of 2010. Year-to-date shipments were off 1.1% compared to the January-May time span last year, AHAM said, adding that declines were reported in virtually all major product categories, including cooking, kitchen cleanup and food preservation appliances.

Sales of kitchen cabinets and bathroom vanities declined once again in May, the Kitchen Cabinet Manufacturers Association said last month. According to the Reston, VA-based KCMA, manufacturers participating in the association’s monthly “Trend of Business” survey reported that overall cabinet sales fell 2.0% for the month, compared to May of 2010. Sales of stock cabinets declined 7.8%, while semi-custom sales increased 5.3% and custom cabinet sales declined 11.8%, the KCMA reported. Year-to-date sales through May were down 4.0% from the January-May period of 2010.

Market Analysis

U.S. Housing Markets Remain Mired
As Many Buyers Remain on Sidelines

Cambridge, MA — With millions of owners stuck in homes worth less than they owe on their mortgages, existing-home sales remain depressed, while new-home sales continue near record lows, concludes a new report released by the Joint Center for Housing Studies of Harvard University.

According to the annual report, The State of the Nation’s Housing, elevated vacancies and foreclosures continue to place downward pressure on prices – and in places where foreclosures are concentrated, property markets “are in turmoil.”

After three consecutive years of record-low construction levels, the vigor of the recovery in housing now hinges on a return of demand, the study notes, adding that the lingering consequences of the recession and financial crisis are thwarting a broader recovery.

“While the sharp declines in both home prices and interest rates have left homes in many places more affordable than they have been in decades, stubbornly high unemployment and tightened lending standards have limited the ability of many first-time buyers to capitalize on the situation,” said Eric Belsky, managing director of the Joint Center for Housing Studies.

“The state of the nation’s housing is sobering,” Belsky continued. “Total housing construction over the previous decade now barely exceeds the lowest level of any 10-year period in records dating back to 1974, but vacancies remain elevated because the recession has driven demand down so sharply.”

While there are no convincing signs yet of a broad turnaround in housing, the report points out that the market could turn quickly as evidenced by the healthy boost in both home sales and prices brought about by the 2010 homebuyer tax credit.

The report highlights how growth in both younger and older households over the coming decade should continue to lift the demand for rental housing, as well as for smaller homes. The report also calls attention to the continuing housing affordability challenges facing the nation.

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