Kitchen & Bath Design News

JAN 2016

Kitchen & Bath Design News is the industry's leading business, design and product resource for the kitchen and bath trade.

Issue link: http://kitchenbathdesign.epubxp.com/i/623962

Contents of this Issue

Navigation

Page 74 of 111

"In 2015 we saw good progress, but we still have the second half of recovery ahead of us." Baker also predicts an improved 2016 for single-family growth. "The sense is that we'll see at least a 10% increase in home building in 2016 compared to 2015," he says. "We are still in the aftermath of the downturn. Household formation rates have been very low, and those that have been formed have been disproportionately choosing to rent. Some of it can be attributed to difculty in getting fnancing because banks are still pretty re- strictive. Also, some households are a bit nervous about buying again and the downturn is still relatively fresh in their minds. Lastly, signifcant portions of the population, particularly mil- lennials, haven't reached the stage in their life where they would normally be buying. But the recovery is getting under way. We're seeing some really healthy numbers and we are on the path of getting back to normal." WHAT MIGHT DERAIL GROWTH? While forecasts look promising, there could be hesitations on the horizon. "The labor force is a concern," says Darcy, "as is the debt load. It's making it more difcult to secure mortgages and major repair loans. For millennials, the debt load is particularly a problem. That's why we say we expect growth in 2016, but slow growth." Pekel also feels that fnances are limiting growth. "It's still tough to get a loan for big projects," he notes. "From what we've experienced as a design/build frm, banks have been adjusting their lending practices and guidelines to be much more restric- tive. In the past, it wasn't uncommon to see home equity lines of credit being extended for 125% of value. Now, banks are looking at it very, very cautiously. They aren't lending anything above what comparable value of the area can support. Until we start to see some correction and easing, big projects that were common- place are going to be the trailing part of the recovery." Denk notes that there also appears to be a tug of war between supply and demand that is slowing the recovery and could impact future growth. "A lot of the infrastructure, the pipeline of housing production, dried up during the down- turn," he says. "Skilled laborers found other ways to put food on the table, building material companies laid of workers and land developers simply stopped developing land. We're starting to see a supply of that infrastructure coming back, but it's a slow process. All of the players need to be convinced the recovery is stable. That could be a headwind to the recovery, but overall, we're optimistic. There is still some headway to go and some progress to make on the single-family sector, but we think the economy is going to stay strong and support the housing demand." Experts indicate that interest rates are another wild card. "While everyone is very focused on increased interest rates, it's important to recognize that the Fed has the most infuence over short-term interest rates," says Denk. "Longer-term interest rates that drive mortgage rates are more infuenced by the capital markets and what they think about the long-term prospect of the economy. The Fed will increase short-term rates, and they will [likely] do so in the near term. But it's important to recognize that not a lot of that will fow through to mortgage rates. The… increases really aren't going to be a major source of problems in the housing recovery. The longer-term rates will stay low by historical terms over the next two years. "It's important to remember that during the 1990s, the 30- year fxed rate averaged about 8%," he continues. "During the 2000s, it was about 6%. Over that 20-year period we still had over 1.2 million housing starts on average, so it didn't inhibit the housing market then. In the last decade, we had interest rates of about 4% so there's every reason to believe that mortgage rates could go up 2 percentage points and not harm the recovery at all, and we don't expect them to rise that full 2 percent for the FORECAST FOR NEW SINGLE-FAMILY HOMES (Thousands of Units) 2011 434 537 620 647 714 877 1,148 Source: National Association of Home Builders 2012 2013 2014 2015 2016 2017 FORECAST FOR EXISTING HOME SALES (Thousands of Units) 2011 3,793 4,125 4,473 4,334 4,649 4,664 4,814 Source: National Association of Home Builders 2012 2013 2014 2015 2016 2017 January 2016 • KitchenBathDesign.com 71

Articles in this issue

Links on this page

Archives of this issue

view archives of Kitchen & Bath Design News - JAN 2016