Thursday, February 11, 2010

Are Floor Covering Sales on Schedule for a Spring Recovery?

Stuart Hirschhorn is a member of the Floor Covering Institute and Director of Research of Catalina Research, Inc. which provides in-depth market research on the floor covering industry.

Last week as I walked through Surfaces, the U.S. flooring show in Las Vegas, I heard many optimistic comments about the future of the U.S. floor coverings industry. A number of vendors even mentioned that sales were good in January (or maybe sales were better than they thought they would be). This attitude is in-line with my outlook for the floor coverings industry posted here last month (Catalina Says Floor Covering Sales Expected to Begin Recovery in 2010). As I stated then, the recovery of floor covering sales will depend upon the returning health of the residential replacement and remodeling market, since the builder market remains weak and nonresidential building construction spending continues to decline at an accelerating rate. I also indicated that the recovery should begin in the spring of 2010.

Key factors in the health of the residential replacement and remodeling market are employment levels, personal income growth, and the pace and pricing of existing home sales. Rising employment levels will add confidence to buy, increasing incomes will give consumers the ability to buy, and an upturn in existing home sales and selling prices will give homeowners a reason to invest in their home.

If the recovery is on schedule, these determinants of demand should be showing improvement. So let’s see how they performed in the fourth quarter of 2009 and in early 2010:

Employment: U.S. civilian employment continued to decline at about 3.7% in the fourth quarter of 2009. However, the drop narrowed to 2.6% in January 2010. This slight improvement may have contributed to a rise in the consumer confidence index in early January.

Personal Income: Strengthening gains in personal income in the fourth quarter may have also contributed to growing consumer confidence. Real personal income rose 1.8% in the fourth quarter of 2009, versus only a 1.1% gain over the first three quarters of 2009.

Existing Home Sales and Prices: The most important trend for the floor coverings industry has been the turnaround in existing home sales and existing home prices. In the fourth quarter of 2009, existing home sales increased by 26.2% over the same period in 2008. This compares to a 1.2% decline over the first three quarters of 2009. More importantly, average home prices seemed to have turned the corner. In December 2009, the average value per existing home sold rose by 3.6%. This may be the most important number to floor covering manufacturers and retailers and is a key sign that we are on schedule for a turnaround in the spring of 2010.

On a more anecdotal basis, I have been looking for a townhouse in South Florida for my first-time home-buyer daughter. I thought it would be easy to buy a townhouse in the Delray Beach/Boynton Beach area for around $150,000, since this location is in one of the worst housing markets in the country. However, our experience was just the opposite. My daughter and I wanted to see 11 properties the first weekend of looking. By the end of our first day, however, six of the 11 units had been sold, and all the properties we did see needed some type of flooring (especially carpeting).

I expect you will be seeing these home-buyers by this spring. Please let me know when they start showing up!


1 comment:

  1. I have always wanted to attend the Surfaces show, it always seems to occur when I have no time. I heard the same thing as far as the buyers increasing / inventory decreasing yet I am pessimistic that this will be the case in the short term.