Tuesday, June 26, 2007

'R' You Are or 'R' You Ain't?

If we're not in a recession, we're certainly close, according to a report from UCLA's Anderson Forecast. The Gross Domestic Product grew by just 0.6% in the first quarter of 2006. That's the smallest increase in four years and down sharply from the 2.5% posted in the last quarter of 2006. The report predicts that housing woes will keep the economy in a funk and consumer spending cautious until sometime next year.
Indicators at the end of June were gloomy. Consumer confidence for June, as measured by The Conference Board's Index, dipped 4.2% to 103.9 for the month. Consumers claiming economic conditions were good dipped to 27.4% in June (down from 29.0% in May), while those saying conditions were bad increased from 14.6% in May to 16.4% in June. Some 21.1% of consumers in June said jobs were hard to get (up from 19.7% in May) while 27.0% said jobs were plentiful (down from 29.1% in May).
Meanwhile the inventory of unsold homes continued to grow in. According to the National Association of Realtors, more than 4.4 million existing homes were for sale but unsold at the end of May; that's almost nine months worth, at current sales rates. And builders had a backlog of more than 7 months of unsold new homes at May's sales pace, some 536,000 unsold homes.
May existing home sales were more or less flat with April, at a 5.99 million unit seasonally adjusted annualized pace; that's 10.3% below the rate set in May of 2006. The median existing home price in May was $223,700, 2.1% below the median price for the same month last year.
May new home sales hit a seasonally adjusted annualized pace of 915,000 units, down 1.6% below April's pace and 15.8% below the rate set in May of 2006. The median sales price of a new home was $236,100, up less than half a percentage point from the $235,300 median price for the same month last year.

Friday, June 22, 2007

Not Much Good News from Harvard on Housing

Disturbing signs that things will get worse before they get better in the Harvard Joint Center for Housing Studies’ annual report, The State of the Nation’s Housing 2007.
For one thing, home building dropped more than 30% from 2005 peak levels during the fourth quarter of last year, knocking more than a full percentage point of national economic growth in the last half.
The sub-prime crisis will constitute a serious challenge for the entire economy. A large number of consumers will be directly affected, and those consumers unaffected by it may turn more cautious with their disposable dollars as the crisis deepens. Since a recent study by NKBA suggested that about three-quarters of consumers remodeling kitchens and baths are paying all or part of the project cost through home improvement loans, our industry is likely to feel the effects.
Subprime lending made up more than 1 in every 5 housing loans in 2006. More than a quarter-million homeowners entered foreclosure procedures in just the fourth quarter of 2006. Affordability mortgages, with low fixed payments that balloon after the initial two years, made up 32% of all mortgages last year and 38% of all mortgages in 2005. The amount of debt in those mortgages, whose viability is in doubt, could be as high as $540 billion.
Total household debt in America exceeded total personal income during 2006, as it has every year since 2003. All of this means that foreclosure rates are likely to remain high and even climb for the rest of this year and next. And those headlines are liable to make a dent in consumer confidence.
The report includes some good news. Harvard reckons that home improvement climbed 2.8% from 2005 to 2006. Housing makes up 20% of net household wealth, up from 17% when the decade began.
Household growth is expected to accelerate, from 12.6 million new households from 1995-2005 to 14.6 million new households 2005-2015. This is due to the children of baby boomers forming households themselves, baby boomers having increased longevity, and foreign born householders increasing. Some 14% of home buyers in 2005 were foreign-born, and that number is slated to increase, as the immigrant population disperses. This will create new challenges in the way our business is conducted, from design tastes to sales floor languages.
Challenges will remain for the nation as a whole to face. Some 37.3 million households are burdened by the cost of housing. Roughly 2.1 million households live in severely inadequate housing, while Harvard estimates nearly three quarters of a million Americans are homeless on any given night. And even after the recent minimum wage increase is implemented, a household with a single minimum wage earner will be unable to afford to rent a two-bedroom apartment anywhere in the country.

Wednesday, June 20, 2007

How Do You Get Paid?

From the afore-mentioned survey...other choices include 40%-40%-20%, 50%-45%-5%, 60% signing/40% delivery, and 60%-30%-10%.

Sales Closing Rates

Based on the NKBA's survey of nearly 700 dealers, designers, builder/remodelers, distributors, fabricators, and cabinet shops mentioned earlier.

Should You Have a Showroom?

A recent NKBA survey of nearly 700 dealers, designers, builder/remodelers, distributors, cabinet shops and fabricators offers some interesting insights into the showroom/no showroom question.
About 78.2% of those responding had a showroom.
Average annual sales for those retailers with showrooms was just under $2.6 million, while those without averaged $920,000 per year.
Retailers without showrooms averaged 1.3 customer encounters (prospects) per day. Those with showrooms averaged 61.5% more traffic, at 2.1 prospects per day.
Retailers without showrooms experienced a slightly higher closing rate, closing 34.7% of sales presentations, compared to a 29.7% closing rate for those with showrooms (average for all respondents was 31.9%).
Slightly more than three-quarters of those retailers without showrooms charge a design fee, compared to 58.4% of those with showrooms who do.
Retailers with showrooms average much higher design fees; $8,052 for kitchens by those with showrooms versus $1,759 for kitchens by those without showrooms. Average bath design fee for those with showrooms was $6,186, compared to $1,156 averaged by those without showrooms.
This suggests that prospects are more convinced by the concrete examples of design and product in a showroom, and are willing to make a higher cash commitment to their project.

Monday, June 18, 2007

"No, we're gonna do it ourselves, and after that I'll be back to book your installers," I told him

The astute and interesting political blogger Doghouse Riley begins an adventure in kitchen remodeling...

Friday, June 15, 2007

Foreclosure Rate Hits All-Time High

According to the Mortgage Bankers Association, the number of foreclosures in the first quarter of this year was the highest it's been in the fifty years that foreclosures have been tracked. More than one half of one percent of all mortgages were foreclosed in that three month period, roughly one out of every 172 homes.
Sub-prime mortgages were especially hard hit; 2.43% of all subprime mortgages were foreclosed upon between January 1 and March 31.
Economic experts are split as to whether the worst is yet to come.

Thursday, June 7, 2007

TWICE: Top 100 Appliance Dealers Top $25 Billion

According to the influential trade magazine, the top 100 appliance dealers' sales last year rose 5.6% over 2005 levels.
TWICE ranks Sears #1, with almost $9.0 billion in white goods sales, followed by Lowe's ($4.2 billion) and Home Deopt ($3.8 billion). Full report in the June 4 issue.

Housing Market Will Stay Weak

A combination of unsold inventory and correcting market prices are going to keep starts and home sales weak for pretty much the rest of 2008, it appears.
Somewhat counter-intuitively, this creates an opportunity for kitchen and bath firms. Kitchens and baths drive home sales, both for existing homes and new offerings. They generally are the rooms that homebuyers look at first, and on which they base their purchasing decisions.
The most recent start numbers from the Census Bureau put starts for April on a pace for 1.53 million units, down about 16% from April 2006.
Building permits in April, though, dipped to an annualized pace of just 1.428 million units, down a whopping 28% from the same month last year.
April new home sales jumped to an annualized rate of 981,000 units. The figure was almost universally reported as a gain, which it is compared to March's pace. But compared to April, 2006, it's off by almost 11%.
And existing home sales for the month have dipped about 11% year to year to a rate of 5.99 million units per year, according to the National Association of Realtors, which blamed the slowdown on tightening lending pracitices, including fewer subprime mortgages.

Consumer Confidence Improves a Bit

The Conference Board Consumer Confidence Index, which had decreased in April, bounced back in May. The Index now stands at 108.0 (1985=100), up from 106.3 in April.
The Consumer Confidence Index generally serves as a good barometer of spending. So far, potential problems such as the high price of gas or the weakening housing market have failed to depress consumers sprits.
We'll be tracking this from month to month and year to year.