The Bottom's Not Here Yet

John G. Swanson
June 1, 2008
COLUMN : Opening Remarks

David Seiders, chief economist for the National Association of Home Builders, sees new single-family home starts bottoming out by the end of the year, with a recovery beginning in 2009. He predicts the remodeling market will trail new construction, but it will begin to see improvement next year.

Whether he's right or not, who knows, but I now have an answer to a question that's kept coming up over the past several months: "When are we going to hit the bottom?" And we have an answer to another question I get asked quite frequently in this issue: "How low will the market go?" See the article highlighting results from the latest AAMA/WDMA market study on page 58 for more details, but Ducker International expects 52.1 million windows to be sold this year. That's about 26 percent below the peak of over 70 million units sold in 2005, but it is the bottom-at least that's what Ducker predicts. It foresees sales, not only sales of windows, but also patio, interior and exterior doors, beginning to inch back up in 2009.

The fact that the bottom is not yet here is a bit scary, but the idea that the worst is nearly over offers some assurance. It enables us, at least, to move on and look to the future. That's what a number of equipment suppliers suggest might happen. Window and door manufacturers will become more aggressive when they "see the bottom," predicts Ed Kelly of Joseph Machine Co. "Once we clear that, I think you'll see a lot of new product development. I don't think companies have shelved all that activity. As soon as they see an end, I think many will make a quick jump to get back in gear."

While spending by window and door companies-whether it's new equipment at manufacturing plants or new trucks or showrooms at dealer operations-is down, no doubt, not everyone is waiting to get "back in gear." In fact, I suspect more than a few companies have done better than idle their engines over the past two years. According to a WDweekly poll we asked about current spending in May, less than a quarter of our respondents' companies had "put a virtual hold" on new investments. One in five said their companies were adding capacity or expanding operations. Nearly one in four reported their companies were spending on significant upgrades.

"We are planning for the future," one wholesale distributor responded in an email. "We just signed a lease on a building in a new area for our company. Some of our competition has pulled out of the market," he continued. "Of course, we are watching our budget, but we cannot ignore new possibilities. Short-term thinking is good for short term companies. The slower times we are now experiencing are allowing us to get our new location set up and running before it gets busy again."

Given the doom and gloom I've heard from some corners, it was one of the most refreshing pieces of correspondence I received in a long time. And as our little survey tells me, this wholesale distributor is not alone. Plenty of others are out there, doing their best to take advantage of the current, slow environment to get ready for better times ahead.

And the better times will come.

Recently, a Home Improvement Research Institute report predicted home improvement spending would grow more 6 percent annually once we get past 2008. The long-term outlook for new construction is equally bullish. While a weak economy and the upheaval in the credit market will put a damper on growth for awhile, basic demographic trends translate into strong underlying demand for the next 10 years. Add to that the fact that the windows and doors we sell will continue to be higher value products as energy codes, home buyers and homeowners will all demand significantly higher performance.

So, we're not at the bottom yet. I'm not going to conclude by saying that's good news, but I would suggest it still leaves us all with a window of opportunity. There's much to prepare for, and I suspect the companies that take advantage of the current slowness to get ready for the next five or 10 years will benefit more from the better times ahead than those that don't.