Housing, R&R Growth Ahead Say WDMA Conference Economists
October 9, 2012
Meetings & Events
Boston–The forecast is for moderate growth in 2013 and beyond, according to three construction experts presenting their findings at the Window & Door Manufacturers Association’s first Executive Management Conference held here last week.
Window and door company executives “may not feel it” yet, said one economist. Among other reasons, 35 percent of all jobs lost in the downturn were in construction, but with 20 percent to 22 percent growth forecasted in housing starts and 4 percent forecasted in remodeling and replacement projects, they will feel it soon.
Jonathan Smoke, Hanley Wood’s Executive Director of Market Intelligence, summarized the projected numbers for 2013:
- 874,000 housing starts
- 10,472,378 R&R projects
- 1,508,970 are projects over $1,000
- 4,523,236 door replacements
Remodeling is coming off of its second bottom with growing demand forecast in 362 of 366 metropolitan areas, three expected to be flat and one forecast to decline further. Pareto’s 80/20 rule applies for 2013, Smoke continued. The 82 metropolitan statistical areas that have the most forecasted potential would deliver two-thirds of the forecasted volume of both R&R and new construction. Remodeling, he said, sees the biggest growth potential.
Among the positive indicators, Smoke noted that foreclosures and REO closings are past peak and diminishing each month nationwide as the distressed supply is being absorbed, mostly by investors. Lower priced homes are also diminishing in share.
David Crowe, chief economist for the National Association of Home Builders, pointed to the NAHB/Wells Fargo Housing Market Index, which tracks builder confidence, as another indicator of an improving market. It has risen 26 points since September, with house price trends also seeing 7.1 percent annualized growth over the last seven months. Dropping mortgage rates and a steady rise in mortgage applications also bode well.
Another positive development, Crowe said, is the collapse of the separation between what the Fed indicated was available for production credit and what NAHB builders reported experiencing at their local banks, namely, not getting loans. Now the problem is that only 10 to 15 percent of builders are asking for credit.
Like all the speakers, Crowe cited the Dodd-Frank regulations, political gridlock and economic uncertainty as potential stalls to the housing-led recovery. Inaccurate home appraisals have also factored into builders’ concerns as a rising problem. On the market stats plus side, the pipeline of developed lots has virtually stopped; lot inventory is controlled by a smaller group of builders and these lot prices are rising. "We’re at a historically low inventory of for-sale new homes, and there is little or no differentiation in local market conditions," he reported. "Builders, who moved into remodeling during the downturn, are now turning back to their core business of building new homes."
Focusing on multifamily trends, Kermit Baker, chief economist for the American Institute of Architects, discussed how the collapse of housing and the economy are now contributing to growth in the national rentership rate. “We’ve never before seen such a dramatic decline of households in our lifetime," he said. Net household growth has been dominated by renters since 2003. Immigrants, in a dramatic decrease, formed only 40 percent of new households. But a wide range of households across gender, race, marital stats and even age have joined the ranks of renters since the housing downturn.
With that trend, multifamily housing construction has seen strong growth recently and is expected to gain. Mutlifamily starts are expected to increase more than 30 percent this year, an additional 20 percent in 2013 and another 9 percent in 2014. "Even with this, we’ll still be at 305,000 starts, well below the peak of 400,000," Baker noted.
More than a third of rental units across the country are single-family homes, he also reported. Low-rise garden apartments (2-4 and 5-9 units) are another third and high-rise (10 or more units) are the last third. “If you are 20 or 30 years old, all you know about homeownership is that house prices fall,” Baker concluded. “It takes a while for memories to change.”
This observation resonated with the “age of anxiety” and “age of disruption” monikers used by Todd Buchholz, former White House Economic Policy Director, and William Taylor, founding editor of Fast Company Magazine. The men provided historical perspective and new business strategies to complement the market and economic indicators. As the fenestration industry heads into a stronger forecast, the question for companies is no longer survival, but “What is unique, exciting, compelling and different about your company?”