Kitchen & Bath Design News

APR 2019

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BOTH NEW CONSTRUCTION and residential remodeling are expected to see only modest growth in 2019, as a series of issues – including affordability – are putting a damper on more significant gains, housing analysts say. Among the key statistics and forecasts released in recent weeks by government agencies, research firms and industry-related trade asso- ciations are the following: HOUSING STARTS Mounting affordability concerns coupled with supply-side constraints will limit single-fam- ily housing output to only "modest" gains in 2019, according to economists at the recent International Builders' Show in Las Vegas. "Ongoing job creation and solid household for- mations will keep demand firm, but builders will continue to grapple with supply-side headwinds that will dampen more vigorous growth," said Robert Dietz, chief economist for the National Association of Home Builders. Specifically, Dietz said, builders are dealing with a shortage of buildable lots, rising labor and construction costs and slow growth in construction-loan ac- tivity. The Washington, DC-based NAHB is pro- jecting housing production to rise a scant 0.8% this year, to 1.27 million units. While there is only a small likelihood of a near-term recession, risk factors are growing and economic growth is expected to slow modestly in response to trade issues, higher interest rates and diminishing fiscal stimulus, analysts said. RESIDENTIAL REMODELING Spending on residential improvements will continue to grow over the next two years at a gradual pace, according to exp erts at IBS (see related graph, above right, and NKBA Market Outlook, page 16). IBS' sp onsor, the NAHB, pre- dicted that remodeling spending for owner-oc- cupied single-family homes will increase 1.6% in 2019 and another 1.1% next year. "Remodeler confidence continues to remain at a high level," said 2018 NAHB Remodelers Chair Joanne Theunissen. "Although there is steady consum- er demand in all areas of the country, the big- gest challenges continue to be the costs of labor and materials to meet the interest." Although existing-home sales are down and the housing market faces labor constraints, four of six key market trends – including an aging housing stock, growth in real income and an uptick in home-equity lending – are positive for building and remodeling, according to Steve Basten, manager of building products research for John Burns Real Estate Consulting. Basten predicted that the growth rate for building products will slow over the next several years, accompanied by a trade down to smaller, lower-cost projects. Builders and remodelers, Basten said, "should go young and go old" when seeking profit op- portunities, based on an exp ected surge in both entry-level buyers and retirees. EXISTING-HOME SALES Existing-home sales, while weak compared to historical norms, are likely to have already reached a cyclical low, with moderating home prices and gains in total household income expected to boost housing affordability and bring more buyers to the market in the coming months, the National Association of Realtors said last month. Existing-home sales – down 8.5% from a year ago and currently at their lowest level since November 2015 – are not ex- pected to decline further in the months ahead, according to Lawrence Yun, chief economist for the Washington, DC-based NAR. Yun noted that, while resales are down recently, lower mortgage rates "will inevitably" improve afford- ability conditions for prospective home buyers and "lead to more home sales" in the coming months. Opportunity Seen in Market for 'Healthy Home' Remodels CAMBRIDGE, MA — While consumer interest in "healthy home remodeling" is on the rise, and awareness of the trend is growing rapidly, the market niche is still only in the "early stag- es" of its growth. That's the key conclusion of a research paper spotlighting trends in "healthy housing" as a component of the nation's home improve- ment industry. The paper, prepared by the Joint Center for Housing Studies at Harvard University, explores both consumer demand for healthy homes and the extent to which residen- tial remodeling professionals are responding to that demand. "Many remodeling contractors are not yet heavily engaged in this market," Harvard researchers found. "There are certain 'health- ier' products – such as low-VOC paints and formaldehyde-free woods – that are becoming standard. Yet overall industry engagement in this area remains muted." The Cambridge, MA-based Joint Center noted that there remain "considerable op- portunities" for future growth in the healthy home market. At the same time, "consider- able barriers" to contractor engagement also exist, among them pricing and the fact that healthy home projects often require specialized training and knowledge, Harvard researchers reported. Market Growth Forecast as Only 'Modest' The markets for both new single-family construction and spending on residential remodeling are forecasted to grow in 2019 and 2020, although the rate of growth, as reflected in the graphic above, is expected to slow compared to recent years (see related stories at left and below). Source: National Association of Home Builders THE GROWING, BUT SLOWING, HOUSING & REMODELING MARKETS Year-Over-Year Pct. Change ■ Single-Family Housing Starts ■ Residential Remodeling 2016 2017 2018 2019 2020 10% 10% 10% 9% 19% 3% 2% 2% 4% 4% 10 Kitchen & Bath Design News • April 2019 BAROMETERS A LOOK AT KEY STATISTICS & TRENDS SHAPING THE INDUSTRY MARKET ANALYSIS

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