Tuesday, January 26, 2010

Do New Housing Stats Signal Recovery for Flooring Industry?

When is a “flat” housing statistic a good sign? When it halts a downward trend. A .2% increase in single family housing starts for 2009 over 2008 isn’t a sexy headline but it could be worse. Could this possibly mean we've finally found the bottom?

Despite some “bad news” headlines, new housing statistics released last week show a healthy increase in building permits - which is often a good indicator of what flooring and other housing dependent industries can expect in the coming months. Plus, single family housing starts, while down for the month of December, were virtually even over 2008. That's a big increase in permits plus no decrease in starts over last year. It's not time to celebrate but I'd like to be able to dust off the cautious optimism.

If you like dry statistics you can draw your own conclusions from the New Residential Construction Report released by the U.S. Census Bureau and the Depart of Housing and Urban Development with statistics for 2009 housing starts, construction permits, and regional construction data at http://www.census.gov/const/newresconst.pdf . Otherwise, here are a few highlights:

Building Permits…the good news and leading indicator of housing starts to come.
Applications for building permits surged nearly 11 percent in December to an annual rate of 653,000 – stronger than economists had predicted and the highest level since October 2008. This spike in applications might mean that builders feel the need to ramp up production before the home buyer tax credit expires later in the year. We should watch this carefully because we are a long way from seeing a safe level of mortgage delinquencies and foreclosure inventory. Single family permits rose 8.3 percent in December to an annual rate of 508,000. Multi-family permits for 5+ units rose nearly 21 percent in December.

Housing Starts. . . . not glorious but they could be worse.
Although some headlines are shouting that single family home starts fell 6.9% in December – a bigger than expected monthly drop likely to due to bad weather – I want to balance that with the fact that single family housing starts were up .2% over 2008. That's important because it represents the first year over year increase since March 2006. Also, multi-family home starts for 5+ units rose 12.2% in December.

The chart below: Housing Starts: Total and One Unit Structures, shows that we are in a flat trough - could this means that single family home starts have stabilized? Let's hope.

Graph from (http://www/calculatedriskblog.com/).

While everyone is waiting and hoping for a return to business as usual, and we are looking for good news wherever we can find it, we must moderate our expectation to be realistic. Four years ago we were building 1.8 million new homes in what we now refer to as “the bubble.” A realistic expectation is 1 to 1.2 million but it will take time to reach that level as long as unemployment remains high. Mortgage delinquencies and foreclosures have not yet peaked. In fact, foreclosures and 90-day past due mortgages combined represent 8.22% of total mortgages outstanding as of December and 55% of our national foreclosure inventory is located in many of the states that are key to the housing recovery. Housing guru, Ivy Zelman, says this problem remains "extremely concerning" and we should expect any housing recovery to remain muted until those select states deal with their problem loans.

The National Home Builder’s Association predicts 2010 housing starts will reach 697,000 . While I've seen stronger predictions, most seem to agree that it won’t be a steady climb from today; rather they expect a slow-down mid year and a stronger finish late in the year.

The bottom line is we have a couple of years to go for sure before we can feel stable ground under our feet, but ironically, with fewer competitors the survivors may find that this is not all that bad; the key is to survive as we climb out of the hole.

There are plenty of opportunities out there and I hope to see many of you at Surfaces next week. You can catch me at my seminar on importing, or shoot me an email. I'd love to catch up with you and next week is a great opportunity to see old friends.


Jim Gould is the founder and president of the Floor Covering Institute.

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