Something happened on the way to the predicted double-dip recession that was to be caused by the European debt crisis and the paralysis in Washington- the housing market showed strong gains and specialty floor coverings store sales turned upwards. These trends can be seen in the following reports.
• According to the Department of Commerce (http://www.census.gov/const/newresconst.pdf), housing permits increased by 6.5% and starts rose by 5.5% in the third quarter of 2011. In October, these gains accelerated, growing 17.7% and 18.9%, respectively.
• Existing home sales increased at even sharper rates. According to the National Association of Realtors existing home sales increased by 17.8% in the third quarter of 2011 and by 11.7% in October.(http://www.realtor.org/research/research/ehsdata)
• Floor covering store sales also began to rebound as housing demand increased. Commerce reported that specialty floor covering store sales increased by 1.2% in the third quarter after declining 7.9% in the first half of the year. Sales are estimated to have increased by 3.4% in October, based on preliminary Commerce data. Positive specialty floor covering store sales are not a surprise, since floor covering sales are highly correlated with housing demand. This has been seen in the findings of the Catalina Floor Coverings Quarterly Update. (http://www.informationgiant.com/www/index.cfm?action=catalog.browse&category=Floor%20Coverings%20Quarterly%20Update&id_category=06a50ffa-04c4-4f6b-9dda-c14d67bd2247).
Considering the uncertainties of the economic environment and the low level of consumer confidence, it would seem unlikely the housing data would be so strong. So why are we seeing such positive housing data?
• Can it be that consumers consider housing prices low enough after declining by 26% over the last five years? They are also reacting to historic low mortgage rates.
• Can it be that consumers are “acting” more confident as initial unemployment claims fall and employment increases? After increasing at a 0.4% rate over the first three quarters of 2011, U.S. employment levels increased by 0.9% in October 2011.
• Can it be that we are finally seeing the peak of our housing woes? A recent Wall Street Journal (WSJ)article indicates that “the share of households delinquent on their mortgage payments has fallen to the lowest level since the end of 2008.” according to the Mortgage Bankers Association. (http://online.wsj.com/article/SB10001424052970204517204577044401122300024.htm)
Now that we are seeing an upward trend in U.S. housing demand, the question now is how sustainable are these trends? I think we could see continued gains in the housing market, since the lack of Congressional action on the budget results in neither a cut in spending or an increase in taxes. So we may see stronger floor covering sales for 2012. However, all bets are off for 2013 if the automatic cut in spending and increase in taxes (a total of $4.9 trillion over ten years) goes into effect.
What do you think?
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.