Long road to recovery

For glass retailers, the road to recovery will be paved with new housing starts, increased remodeling expenditures, and stronger consumer confidence. But it will be a long journey. While the single-family housing and remodeling markets appear to have hit bottom, growth will be gradual, with both segments experiencing upticks in 2010 yet remaining well below healthy levels, say economists at the National Association of Home Builders, Washington, D.C.; McGraw-Hill Construction, New York; and Harvard University’s Joint Center for Housing Studies, Cambridge, Mass.

NAHB officials anticipate single-family housing starts of 615,000 this year, compared to 451,000 starts in 2009. Although slightly less optimistic in terms of volume, McGraw-Hill Construction analysts also predict an increase in single-family housing starts from  430,000 units in 2009 to 560,000 units in 2010.

Total housing starts will increase to 695,000, up from 559,000 last year, according to NAHB. Despite the 20 percent anticipated increase, these numbers bear little resemblance to the 2005-2006 peak of about 2 million starts, or even the 1.8 million annual starts that some industry experts consider a sustainable level of new housing, says Christina Lewellen, senior editor, Window & Door.

The good news is that NAHB economists see single-family housing starts continuing to improve. While 2010 will remain weak, the numbers should continue to trend in a positive direction into 2011 and 2012, they predict, topping 890,000 starts next year.

The Worker, Homeownership, and Business Assistance Act of 2009, signed into law by President Obama Nov. 6, 2009, will help spur this growth, NAHB officials say. The new law extends the $8,000 first-time homebuyer credit through April 30, 2010, and provides a new credit of up to $6,500 for repeat homebuyers who buy a principal residence if they have been residing in the home they currently own for five consecutive years out of the eight years preceding the purchase of the new home, according to a Nov. 17 NAHB release.

“The tax credit has already proven to be an effective means of boosting economic activity,” said NAHB Chairman Joe Robson, a home builder from Tulsa, Okla., in the release. “We hope that the government’s action to enhance it will have the intended additional stimulative effect that will help get housing and the economy back on solid ground.”

The picture is less clear in regards to multifamily housing. NAHB officials predict starts will continue their decline this year, dropping from 108,000 units in 2009 to 80,000 units in 2010. McGraw-Hill Construction pegs multifamily housing starts at 140,000 units in 2009, predicting a 14 percent increase to 160,000 units in 2010 as the economy begins to stabilize.

The remodeling market
Experts tell a similar story regarding the remodeling market in 2010, although the downturn in this segment was much less dramatic than for home building, said Kermit Baker, director, Remodeling Futures Program at the Joint Center for Housing Studies, and chief economist, American Institute of Architects, Washington, D.C., at the Outlook 2010 Executive Conference, Oct. 15-16, 2009, in that same city (Click here for a full conference report).

Expected to bottom out in the fourth quarter of 2009, annual spending levels will start to rise in the beginning of 2010, causing year-over-year declines to shrink to 8.9 percent by the second quarter, according to Remodeling Futures Program officials. (See graph below)
 

“Remodeling spending by homeowners shows early signs of stabilization,” said Nicolas Retsinas, director, Joint Center for Housing Studies, in a 2009 fourth quarter release. “While the housing recovery has been erratic, a strengthening economy could produce spending increases on home improvement projects by the second quarter of [2010],” he said.

“Favorable financing costs—for those households with access to credit—and a pickup in home sales are producing more opportunities for home improvement projects,” added Baker, in the release.

In a presentation at the Outlook 2010 Executive Conference, Baker pointed to additional factors that could help boost remodeling project spending this year. Among them: falling materials prices, a weak labor market, federal initiatives for energy-efficient projects, and a large number of foreclosed homes in need of repair and renovation. “As the housing market recovers, owners will feel home investments are less risky,” he told attendees.

Right now, homeowners are still cautious when it comes to spending money on residential properties, however. “A generally weak housing market with unstable prices, near record levels of foreclosures, and other distressed sales are discouraging households from undertaking nonessential remodeling projects,” Baker said. “With shrinking home equity and weak cost recovery for home improvement projects, owners are hesitant to undertake larger-scale home improvement projects.”

On a positive note for glass retailers, those homeowners who are tackling remodeling projects are increasingly focusing on kitchen and bath remodels (See figure below).

Figure courtesy of Kermit Baker, chief economist, American Institute of Architects; 2010 Outlook Executive Conference presentation “The Outlook for Homebuilding and Residential Remodeling”

Consumer confidence
Ultimately, the housing and remodeling markets will be in the hands of consumers as they decide whether or not to part with their cash in 2010. Banks’ willingness to extend credit to homeowners also will play a role (See Editor’s notes).

At press time, the latest figures available from the Bureau of Economic Analysis, Washington, D.C., revealed personal income had increased 0.2 percent among Americans in October 2009 and disposable personal income had increased 0.4 percent. Consumer spending rose 0.7 percent during that same time period, according to a Nov. 25 release.

Unemployment figures had improved slightly as well, dropping to 10 percent in November 2009 from 10.2 percent the previous month, according to a Dec. 4 report from the Bureau of Labor Statistics, Washington, D.C.

Consumers remained pessimistic regarding the overall economy, however.  While The Conference Board Consumer Confidence Index had increased slightly, up from 48.7 in October 2009 to 49.5 in November, it remained at levels not seen in 26 years, said Lynn Franco, director, The Conference Board Consumer Research Center, New York. “The moderate improvement in the short-term outlook was the result of a decrease in the percent of consumers expecting business and labor market conditions to worsen, as opposed to an increase in the percent of consumers expecting conditions to improve,” she said, in a statement.  “Income expectations remain very pessimistic, and consumers are in a very frugal mood,” she reported.

In other words: “The days of the $5,000 shower enclosure are gone—at least for awhile,” says Doug Linderer, owner, Go Glass Corp., Salisbury, Md.

See what Linderer and other glass company executives have to say regarding the year ahead here. Forecasts for the nonresidential construction market appear here.