Construction Forecast Conference Addresses Decline of Residential Market
Reed Construction Data hosted its Eleventh Annual Construction Forecast Conference, October 10-11, at the National Press Club in Washington, D.C. The session offered an economic forecast for all U.S. construction, as well as insight into the residential market.
According to Jim Haughey, chief economist for Reed Construction Data, when it comes to residential construction, “Everyone knows at this point the housing market is in trouble; that’s been advertised for a long time.”
He estimated that there are 175,000 surplus new homes for sale, with 500,000 surplus existing homes for sale. He also cautioned the audience that more “already sold” homes—becoming empty or unaffordable—may soon be added to the market.
“The question is how long does it take to work that inventory off?” he asked.
Haughey answered the question with the prediction that the new residential market is in the ninth month of a 15-20 month inventory correction. At the current monthly sales rate, the surplus is approximately a 7-8 month supply of new homes, he said.
With regard to new construction, Haughey noted that residential starts peaked at 2.265 million in January and then declined to 1.665 in August. In particular, the biggest decrease in housing starts has been for investment condos and starter homes in the Southwest and Southeast parts of the country. As homebuilders trim the surplus of unsold new homes, inventory correction is expected to keep starts below demand until the start of 2007. Haughey predicts that starts will be steady at 1.8 million by year’s end.
What’s behind these declines? According to Haughey, the single-family market has suffered due to the withdrawal of speculative buyers when quick capital gains prospects disappeared. This loss has been heavily concentrated in coastal retirement and resort markets. He also noted the loss of entry-level buyers when mortgage approval standards tightened and prospective buyers saw earlier buyers begin to default.
Haughey added that condos are currently the weakest market, since this market was targeted by both speculators and subsidized entry-level buyers. However, he said, rising apartment demand has made up for the drop in condo construction. The demand for apartments is coming from “refugees” from the single-family market, the creation of 120,000 new jobs a month and a continued flow of immigrants, Haughey said.
He also told the audience that he feels inventory adjustment will largely be local. For most metro markets, if there is any inventory surplus, it will be absorbed quickly. Rather, Haughey said, “the burden of adjusting inventory will fall very heavily on a small number of overbuilt markets.”
He also predicted that price cuts will be steep in those “overbuilt” cities. Overall, he showed the audience that new home prices have fallen 5.5 percent from February, with August 2006 median prices 1.35 percent below last August. He expects further significant price declines ahead, up to another 5 percent.
When asked by a member of the audience whether he thinks it will be a soft or hard landing, Haughey suggested it would be a soft one—although it may not seem that way for members of the home building industry.
There was also some discussion of material costs during the forecast. Haughey reported that construction cost gains have been slow. He expects that lumber and plywood prices will stay low and may fall a little more. He also noted that gypsum product prices are near peaking, with a decline ahead.
FMA Fall Conference Tackles Tough Issues
The Fenestration Manufacturers Association (FMA) met on October 4-6 in San Antonio, Texas, to discuss a host of topics, including temporary labels, dealing with emergency crisis and water penetration.
The association’s Testing/ Education Committee discussed FMA’s responsibilities to help educate the building officials. The group talked about problems surrounding labels on windows and decided to work to educate members of states on the importance of third-party certification, to make them aware of what exactly the certification is. Additionally, they want the officials to know how to comply with the building codes after reading the labels.
Dave Olmstead of PGT Windows provided a label presentation that attendees discussed and reviewed. Then, the task group decided to create a brochure and slide presentation that they could be used to educate the building officials, professional people and consumers about labels, including temporary labels. The presentation and brochure would show a label’s separate parts and explain how the information on the label is derived.
“The temporary label is going to be mandated. It’s basically a done deal [it will be voted on by the Florida Building Commission this November],” said Olmstead.
Freddie Cole of General Aluminum made a presentation about the problems he has documented with window installations. The group decided to meet at a later date for a two-day meeting to finalize the FMA/AAMA 100/200 document on installation protocols for masonry and wood frame construction.
The Thermal Committee discussed the proposed amendments to the 2007 IECC supplement affecting the reduction in the SHGC for glazing, and reviewed the North Carolina, South Carolina, Georgia and Texas energy codes.
The association approved a new committee called the Materials and Components Committee, which will replace the Vinyl Committee. The new committee will have a scope that includes all materials and components, and focuses on addressing questions about these materials and components.
The association also learned a lot about new construction in Louisiana.
Randy Noel, a custom builder in southern Louisiana and the chairperson of the Louisiana Code Council, led a discussion on the genesis of the newly-adopted Louisiana building codes. The state has adopted the 2003 building codes, which are in effect right now in 11 parishes in the state. Louisiana is expected to adopt the 2006 IRC/IBC codes as the code is written. He said that a lot of decisions made by the board are driven by politics. Noel said his first task was to get the code offices open in Louisiana—a process that could not get started until there were sufficient funds.
Noel said that now, builders order windows when they pour the slab because it takes that long to get the windows delivered. But, he added that for him as a builder, prefabricated doors are the hardest to find.
“Our market is kind of in ‘on-demand’ mode. We haven’t exactly ramped up to meet the need,” Noel added. “There is also a huge rumor that adding impact-rated windows will increase the cost of a new home by $13,000. But, that’s not true,” he said.
The association also reviewed a draft of the “Voluntary Specification for Rating the Water Penetration Resistance of Windows and Doors Subjected to Severe Wind Driven Rain Conditions” that the American Architectural Manufacturers Association (AAMA) Southeast Region devised.
Andy Greene, the regional sales manager for AAMA, went through the progress to date of the development of the AAMA test protocols for water leakage through doors and windows. Attendees discussed whether this document by AAMA is something FMA would like to promote and provide suggestions or whether the FMA wants to reject the document and help come up with something totally new to address the issue. The association’s testing
committee agreed to take on the question and explore options in the upcoming months.
U.S. Builders Look Toward Russia for Lumber Trade
U.S. home builders addressed the International Forestry Forum in St. Petersburg, Russia, on October 11, and offered to share their technology with the Russian hosts. The U.S. homebuilders also encouraged them to increase exports of softwood lumber and other wood products to America.
The forum attracted more than 3,000 forestry experts, scientists and legislators. Representatives from more than 50 countries attended the event.
“We support opening up competition in the U.S. lumber market because we know that it will be beneficial for those families in our country who want to buy homes,” said Jerry Howard, NAHB’s executive vice president and chief executive officer. “We also appreciate the benefit it will bring to our home builders, who are seeking a steady supply of affordably priced lumber.”
Howard and NAHB immediate past president David Wilson, a home builder from Ketchum, Idaho, represented NAHB and the International Housing Association (IHA) at the conference. NAHB serves as the secretariat of the IHA, which was established in 1984 to provide a forum for home builders and related industry groups around the world to share information and discuss issues related to the housing industry.
Last year, more than 38 percent of the lumber used in the United States was imported, with Canada supplying the bulk of that amount.
Conversely, a new softwood lumber agreement between the United States and Canada that took effect on October 12 may artificially raise lumber prices during periods of normal or slow demand, according to an article posted on the NAHB website.
The pact is also expected to cause new uncertainties for U.S. builders over the availability and price of Canadian lumber.
“Access to a reliable, steady supply of lumber is the lifeline for any American home builder,” said Wilson. “We believe that lumber trade barriers impose an unreasonable burden on U.S. home buyers and on the industries that depend on adequate, affordable supplies of lumber to provide the housing and other vital goods and services America needs.”
Howard said that the new trade pact represents an opportunity for Russia and the rest of Europe to increase lumber exports to the United States over the long term.
“Today, the United States is overly reliant on Canadian imports to meet its lumber needs,” said Howard. “We are reaching out to you to correct this problem and we are looking to Russia to add equilibrium to our market for this essential commodity for the home building industry.”
“The Joint Center for Housing Studies of Harvard University projects 14.6 million household formations over the next 10 years,” he added. “In the next 10 years, we conservatively estimate that we will need to construct 18 million new homes. We want to work with you to open up this new trading opportunity.”
During their week-long visit to Russia, Howard and Wilson also held productive talks with representatives of the Builders Association of Russia, the Union of Timber Manufacturers and Exporters of Russia, Ilim Pulp Enterprise, BaltRoss, Slavyansky DSK and the Association of Wood Housing.
According to a report on the NAHB website, the meetings came one week after Howard visited Stockholm to discuss with Swedish trade and industry officials ways to secure new import sources of softwood lumber and other wood products and to export American building systems and log homes technology.
Hurd Windows to Cut 103 Employees
Nearly 40 percent of the employees at Hurd Windows & Doors in Merrill, Wis., were informed that they are scheduled to lose their jobs on December 11 and that the job losses would be permanent.
Approximately 270 employees work for the two Hurd facilities in Merrill.
The company said the layoffs are due to the declining shift in residential building and a drop in privately-owned housing starts in August, Hurd’s short-term and long-term product development plans and the commitment of resources to development and engineering of product offerings for new segments.
“There is no denying that our company’s wagon is directly hitched to the performance of the U.S. housing industry,” said general manager, Dominic Truniger. “When less building permits are issued, on top of a decline in building starts, it can only translate to one economic factor…less demand.”
Truniger explained, “In order to secure the organization’s longevity, we must be able to not just sustain, but grow our current position as the preeminent and prominent window and door provider. To do that, we must have the right product for the correct market segments, and realigning resources is a necessary course in accomplishing and maintaining this goal.”
In spite of the slide in housing starts, an integral element in achieving Hurd’s growth plans resulted in the recent completion of a new 200,000-square-foot production facility located in Ohio. The operation will enable the company to expand its vinyl product line that will cater to the new construction and remodeling sectors.
“The new plant will ultimately have a great impact on the overall success of Hurd and all its employees,” said Truniger.
The news comes more than a year after employees at the Merrill and Medford facilities went on strike over what they called unfair labor practices. A federal agency later ruled the complaint filed by the union employees had merit, and the striking employees all were offered their jobs back.
The company announced in June that it was closing one of its three Merrill facilities. Approximately 50 of those employees who worked at the Thomas Street plant transferred in September to the Prospect Avenue plant.
Georgia Gulf Completes Royal Group Acquisition
Georgia Gulf Corp. of Atlanta announced the completion of its acquisition of Royal Group Technologies. Under the terms of the definitive agreement, originally announced on June 9, 2006, Georgia Gulf has now acquired all of the outstanding common stock of Royal Group for C$13.00 per share in cash.
Georgia Gulf will continue to be headquartered in Atlanta with its common shares continuing to trade on the New York Stock Exchange under the ticker symbol GGC. Georgia Gulf’s existing management team will serve as executives of the company.
Georgia Gulf will report fourth quarter results, inclusive of Royal Group, in February of 2007.
Dow Corning Launches Quality-Assurance Initiative
Dow Corning launched a unique quality-assurance initiative for the European structural glazing and insulating glass market at Glasstec 2006.
The move is aimed at bolstering Dow Corning’s global leadership in structural bonding and sealing solutions in the construction sector. The initiative is aimed at the entire construction industry value chain—from architects, façade consultants and engineers, system suppliers, fabricators and applicators, Dow Corning said.
Dow Corning executives indicated that they believe that structural glazing makes it possible to meet increased performance requirements in the new building and renovation market.
With structural glazing, the silicone in the adhesive bonds chemically with panels made from glass, stone, metal or wood and the curtainwall frame, creating strong and durable adhesion. This bond becomes part of the structural fabric of the building, offering exceptional resistance to thermal stress, earthquakes and high winds, as well as bomb blasts, fire and intrusion.
Truseal Technologies Co-Locates with Besten Equipment
Truseal Technologies Inc. moved into a new facility last month, and Besten Equipment will soon follow joining Truseal into the new headquarters in Solon, Ohio. Besten assembles and supplies equipment utilized in the fabrication and glazing of insulating glass units. The relocation alleviates space concerns at both organizations due to recent growth and enables a centralization of resources to further improve operating efficiencies.
The leased 81,000-square-foot building at 6680 Parkland Boulevard is located just minutes from the former locations of both Truseal and Besten. Truseal’s headquarters, research and development and sales-related team of 45 employees will be joined by both the administrative and equipment manufacturing associates of the Besten operations at the new state-of-the-art facility. Truseal’s manufacturing operations are located in Barbourville, Ky.
“Our new space enables us to further integrate our operations and take advantage of natural synergies that exist between us,” said A.J. “Gus” Coppola, president of Truseal Technologies. “The move will enable our continued growth, while fostering greater collaboration and product innovation between Truseal and
Study Shows Marvin, Simonton and Milgard Companies Rank High in Satisfaction
Marvin Windows and Doors ranked highest in satisfying architects with residential windows and doors, Simonton (SBR) Windows ranked highest in satisfying builders and remodelers with residential windows and patio doors and Milgard Windows and Doors of Tacoma, Wash., earned top honors among commercial door and window manufacturers when it comes to satisfying subcontractors. This is according to the J.D. Power and Associates/McGraw-Hill Construction 2006 Residential Window and Patio Door Architect Satisfaction Study, Residential Window and Patio Door Builder and Remodeler Satisfaction Study and Commercial Window and Door Subcontractor Satisfaction Study respectively.
Overall architect satisfaction is based on performance in six factors. They are (in order of importance): features and design (28 percent); performance (19 percent); sales and marketing support (19 percent); architectural design support (17 percent); warranty (9 percent); and price (9 percent).
Marvin received the highest ratings in four of the most heavily weighted satisfaction factors: features and design, performance, sales and marketing and architectural design support. Marvin is followed in the rankings by Pella.
Overall builder and remodeler satisfaction is based on performance in seven factors. They are (in order of importance): product (25 percent); warranty and repair service (25 percent); delivery (14 percent); price (11 percent); sales and marketing support (10 percent); placing orders (9 percent); and credit/billing (7 percent).
Simonton received the highest ratings in four satisfaction factors: warranty and repair service, delivery, price and placing orders. Simonton is followed in the rankings by CertainTeed and Marvin in a tie, Andersen, Milgard and Pella, respectively.
“Product and warranty and repair service together account for 50 percent of overall satisfaction, which are two areas that reflect directly on builders and remodelers from the standpoint of homeowners,” said Jim Howland, senior director of the real estate industries practice at J.D. Power and Associates. “An average of only 5 percent of respondents say they purchase residential doors and windows exclusively from one manufacturer. Clearly there are many good substitutes available to builders and remodelers, so excellent customer service and product differentiation are critical to maintaining and expanding market share.”
The study found that customer satisfaction plays a significant role in creating customer advocates among new-home builders and remodelers. Manufacturers that received an average index score of 806—the study average—on a 1,000-point scale received an average of 7.5 recommendations from customers. An increase of 30 index points led to an additional 0.4 recommendations given out.
“Competition is fierce in the residential doors and windows market, so recommendations from home builders and remodelers can have a significant impact on a manufacturer’s bottom line,” said Burleigh Morton, senior director of research and analytics at McGraw-Hill Construction. “Providing outstanding performance in the areas that are most important from the point of view of customers can lead to greater levels of loyalty, and ultimately to an improved bottom line as manufacturers builder a larger and increasingly loyal customer base.”
The study found that superior customer satisfaction leads to greater customer loyalty in terms of both a willingness to specify the manufacturer again and to make recommendations to others. Among architects rating a window and patio door manufacturer a “10” on a 10-point scale, 88 percent say they “definitely will” recommend their company specify the manufacturer again. Loyalty drops dramatically when satisfaction declines.
Additionally, the occurrence of problems can have a significant impact on customer satisfaction. The study examined three types potential problem areas in the relationship builders and remodelers have with the window supplier: timeliness (products arriving on time), order accuracy and billing. Of these, timeliness of product delivery had the greatest impact on overall satisfaction. Customers who did not receive their order when expected report significantly lower scores on average, than those who did receive products on time.
Overall satisfaction of commercial door and window subcontractors was based on performance in seven factors: warranty and repair service, product, delivery, sales and marketing support, placing orders, credit/billing and price. Milgard Windows and Doors received the highest ratings in all the factors except sales and marketing.
The 2006 Residential Window and Patio Door Builder and Remodeler Satisfaction Study is based on responses from 2,343 new-home builders and remodelers. Each respondent evaluated up to two manufacturers of residential windows and patio doors.
Edgetech I.G. Earns Two G06 Awards
On September 15, Edgetech in the United Kingdom was awarded two G06 awards at a special dinner and awards ceremony. Andy Jones, sales director and general manager for Edgetech UK, accepted the Specialist of the Year and Energy Efficiency Initiative of the Year awards on behalf of the company.
“It was an amazing night,” said Jones. “It was a real recognition of the hard work the whole Edgetech team has put in over the last year to transfer the market in the UK to warm edge. Edgetech UK has seen three months of record Super Spacer sales in 2006.”
The G06 Awards are held annually and are designed to recognize individual and corporate achievement at raising and improving the standards, performance and products in the glazing, fenestration and relevant construction industries.
“What a thrill it is to be given these awards from the European community where energy efficiency guidelines are becoming increasingly stringent,” said Mike Hovan, president of Edgetech I.G. “We are committed to furthering our energy efficiency initiatives in the UK, in the Americas and worldwide.”
The Energy Initiative of the Year is awarded to companies of any size that are proactively working toward a higher standard of energy efficiency. The Specialist of the Year Award is given to companies that offer a niche product to the industry that is not necessarily covered under the other categories.
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