As a floor coverings industry analyst who pours over housing data on a daily basis, the trends I have seen over the past five years have been pretty depressing. I have to contend with the daily headlines about foreclosures, tight credit conditions, declining home values, and sharp drops in new and existing homes. So you can imagine how I felt when I saw the latest positive trends for multi-family housing construction. In the first seven months of 2011, permits for new multi-family housing units jumped by 25.4% and starts soared by 51.7%. Starts for multi-family rental units were up at an even sharper rate, closer to 60.0%. Compare that to new single-family homes which are down by about 16.0%.
Declining home values, high unemployment rates and weak income gains that limit the ability to purchase a home mean more families no longer see the financial benefits of home ownership. As a result, the U.S. home ownership rate has dropped to 66.5% in 2010, down from 69.2% in 2004. Meanwhile those renting homes have increased by some two million over the past five years.
As rental property owners and developers take advantage of the shift to rentals, the multi-family rental market could become one of the bright spots for the U.S. floor coverings industry for the remainder of 2011 and for 2012.
The weak home buying market has increased the number of renters and reduced apartment vacancy rates. According data released by Reis, Inc. and reported by Bloomberg, the apartment vacancy rate declined to 6.2% in the first quarter of 2011, down from 8.0% a year earlier. Over the same period, apartment rents were increasing at 2.5% to 3.0% nationally, and over 5.0% annually in some strong markets such as New York City and Virginia. These trends caused property owners to make improvements and developers to start new projects as apartment building finances improved.
This increased activity in the multi-family rental market has caused that segment to take an increasing share of the residential floor coverings market. This is especially true in the broadloom sector, since wall-to-wall carpet covers a greater share of the typical rental unit. As a result, Catalina Research estimates that about one-third of total U.S. broadloom sales are now attributed to the multi-family rental market (renters, property managers, and builders), despite the average rental unit being about 30.0% smaller than average owned housing unit.
According to the U.S. Department of Commerce, there are approximately 60,000 lessors of residences and 38,000 residential property managers. Catalina estimates that together these two buyers purchase about $1 billion in broadloom annually (in manufacturers dollars) or about three quarters of the multi-family rental broadloom market and about 25.0% of total U.S. residential replacement carpet sales.
To succeed in the floor coverings industry today, you must be able to take advantage of the opportunities in this important and growing market. What information do you need to exploit this growing market?
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.