Housing Solid in Face of Softening

The housing market, softening somewhat – as expected – from its recent record-setting pace, remains positive as a result of continued favorable market fundamentals, according to the latest economic indicators. Among the key statistics released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

Housing Starts
Strong demand for new single-family homes helped buoy builder confidence as the housing market headed into late spring, noted the National Association of Home Builders. Citing its latest in a monthly series of builder surveys, Washington, DC-based NAHB said builders “continue to express confidence in the overall housing market and expect sales to remain strong during the next six months.” Housing posted healthy gains in April after a temporary decline in March. NAHB is holding to its most recent 2005 forecast of 1.92 million housing starts, down only 1.4% from the total posted in 2004.

Existing-Home Sales
Economic improvements and a growing population continue to support the market for existing-home sales, said the National Association of Realtors. It also reported existing-home sales rose to near-record levels in March, with a continuation of strong home price gains. Existing-home sales increased 1% in March, to a seasonally adjusted annual rate of 6.89 million units, the third-highest level on record, and 4.9% above the 6.57 million-unit pace posted in March 2004, Washington, DC-based NAR said, noting the record was a sales rate of 7.02 million in June 2004, followed by 6.98 million in November 2004. “With mortgage interest rates remaining historically low, gains in the labor market and economic growth appear to have lifted home buyers’ confidence,” said NAR chief economist David Lereah (see related graph, above).

New-Home Sales
Despite an uptick in mortgage rates, “there’s still plenty of demand” in the housing market, the National Association of Home Builders said last month, after sales of new single-family homes rose by an unexpectedly strong 12.2%, to hit an all-time-high, seasonally adjusted annual rate of 1.43 million units in March. “The strength of this market continues to surprise most experts, and March’s big acceleration in new-home sales was both unexpected and unaccounted for by our own builder surveys and other market signals,” said David Seiders, chief economist for NAHB. “Given the pace of sales to date and the slimmer inventories of unsold homes, the production side... remains exceptionally healthy. [But], we are keeping a close eye on investor activity in some extremely hot markets.” Seiders warned, however, that it’ll be difficult to sustain the robust sales pace, even though 2005 new-home sales should challenge last year’s record 1.2 million units.

Appliance Shipments
Domestic shipments of major home appliances declined for the fourth straight month in April, compared to 2004, and were running more than 9% behind last year’s record pace, the Association of Home Appliance Manufacturers reported. April appliance shipments totaled 6.17 million units, compared to the 6.46 million units shipped in April 2004, said Washington, DC-based AHAM. Shipments for the first four months of 2005 totaled 24.5 million units, down 8.8% from the first four months of ’04, AHAM noted, adding that much of the decline is due to shipments of home comfort products, which were down 33% for the year.

Cabinet & Vanity Sales
Sales of kitchen cabinets and bathroom vanities rose 16.1% in March over sales the same month a year earlier, said the Kitchen Cabinet Manufacturers Association. Reston, VA-based KCMA also said manufacturers participating in the association’s monthly “Trend of Business” survey reported sales of stock cabinets were up 14.4% for the month, while semi-custom cabinet sales increased 18.6% and custom cabinet sales gained 14.9%. Year-to-date cabinet sales for the first three months of 2005 were up 14% over the same period a year ago, KCMA added.
MARKET ANALYSIS
Housing Market Seen Being Bolstered by New Wave of Immigrants, NAR Reports

Washington, DC — The record-breaking housing boom of the past several years – resilient even the face of an economic downturn – will likely be sustained in the future by a wave of foreign-born people emigrating to the U.S.

That’s the view of the National Association of Realtors, which said last month that immigrants are expected to be “a booming segment of future housing demand,” offsetting anticipated interest-rate gains and the inevitable softening of demand resulting from the aging of the Baby Boom generation.

“Immigration has been a significant factor in the changing demographic structure of the country,” said NAR economist Keunwon Chung, noting that the average time lag from an immigrant household’s arrival until its first-time home purchase is nine to 13 years.

Chung pointed to the fact that more than one out of 10 people currently in the U.S. population are foreign-born, while minority households will account for 28% of all U.S. households in 2005. That figure is expected to grow to 32% by 2015.

More than 10 million immigrants have arrived in the U.S. since 1990, and they will be an important driver of housing demand in the future, particularly in major metropolitan areas such as New York, Los Angeles, San Francisco, Chicago and the District of Columbia, the analyst said, adding that foreign-born households account for roughly 10% of new- and existing-home sales.

“While (they) may not instantaneously add to housing demand, the majority eventually become homeowners... and [they] will play an even more vital role in the future housing market,” Chung concluded.