Volume 13, Issue 9 - November/December 2012
The Sky is Not Falling
While the housing industry’s sky has already fallen and the bubble has long since burst, the construction industry is finally putting the crumbling pieces of what was once a thriving housing industry back together. One of the ways the industry can stay informed and plan for the future is to look at what the experts are predicting regarding growth. McGraw Hill Construction gathered many of those housing and economic experts together recently at its Annual Outlook Executive Conference. A summary of the findings from the event follows.
Time to Celebrate?
“It finally just went above 800,000 last week and I don’t know if I should open the champagne or not,” said Carl Case, professor of economics emeritus at Wellesley College and senior fellow at Harvard University’s Joint Center for Housing Studies.
He outlined challenges that continue to remain including housing inventory levels and the continued inability for many homeowners to secure a loan. The question of whether those housing numbers will continue to rise past that 800,000 mark was one he also attempted to answer.
“A mini-boom could happen but I don’t think it will have the legs of what we have seen in the past,” said Case.
Robert Murray, vice president, economic affairs for McGraw Hill Construction, offered his predictions for residential and commercial growth going forward.
“There is a lot more positive news for single-family housing,” he said. “What we are seeing is stabilizing home prices and the amount of foreclosures is beginning to ease.”
He added that the inventory of new homes for sale is quite low which is good news, coupled with low interest rates. While 2012 was still a tough year, 26 percent growth did occur in the residential market, according to McGraw Hill.
Multi-family continues to be a bright spot and still a “relatively attractive investment target,” said Murray, who noted that he is seeing more growth in condominium projects.
The Seven Year Difference
If you don’t believe him look at the numbers: More than half of all building construction is green; and in the commercial market, by 2016, $240 billion dollars will be devoted to green projects.
Companies aren’t just sliding by either. “Almost everyone is doing more than the bare minimum requires,” said Bernstein.
“$34-$38 billion will be devoted to residential green building in 2013 and in 2016 somewhere greater than a third of residential projects will be green,” he said.
Bernstein said research has shown a real shift among builders during the downturn. The amount of homebuilders dedicated to green (meaning 90 percent of the home is green), comprise 17 percent of all homebuilders this year and by 2016, “one-third of builders will build green homes,” he said.
Bernstein also pointed out the trend in pre-fabrication as a key shift taking place as companies seek to reduce construction waste.
And while the U.S. Green Building Council’s LEED program may be leading the way toward growth, it’s not the only reason this market is increasing.
“Companies are interested in energy disclosure reporting, transparency of the supply chain, life cycle assessment, environmental declarations, etc.,” he added.
Regarding total construction cost inputs, these include labor, materials (including waste), equipment (including operations and maintenance costs), subcontractors, bonds, insurance and taxes, and overhead and profit.
Other factors affecting the price of construction materials include the fluctuating U.S. dollar (compared to the Euro), the “inscrutable” price of oil and the Baltic dry index which is an assessment of the price of moving the major raw materials by sea.
Moving to that good news, Anderson said this includes an RLB survey indicating that the construction industry is on the road to recovery in major cities, good industry growth is expected through 2020, interest rates will remain low and the housing industry continues to recover–with pace even expected to pick up. There was more good news as, “sanity returns to bid pricing,” says Anderson.
The not-so-good news includes a presidential election year which “drags on the recovery.” Results of the elections will have a significant impact on the future speed of recovery and the fiscal cliff also drags on recovery. “Failure to address it [the cliff] will be bad for property and construction in the long term,” he said.
He also advised attendees to expect bid prices to spike at an activity tipping point and labor and materials prices to continue rising in 2013. He adds that capacity in some trades is likely to become a problem and will lead to future upward price pressure. “Despite a temporary setback, commodities will face ongoing price increases driven by recovery in global demand and scarcity.”
With this trend toward fiberglass we have increased our fiberglass door series from 34 to 50 styles.
However, fiberglass isn’t the only growing material. In early 2012 there was strong market demand for archtop aluminum storm doors, and we see this trend increasing in 2013. To meet this need we introduced our archtop aluminum storm door series in August 2012.
Previously, homeowners’ choices for archtop storm doors was limited to steel security or solid core aluminum doors, but neither of those are optimal. Steel security doors have the propensity to rust and solid core aluminum can rot from the inside out. Our archtop aluminum storm doors are manufactured using extruded aluminum that is pre-formed making a custom fit.
Another trend we see is the desire for more vibrant colors.
What Our Customers Predict for 2013
Consumer confidence is a major driving factor in home improvement expenditures. Homeowners are making remodeling decisions based on need far more than want. They will replace a leaking roof or inefficient windows; however doors are typically relegated to a discretionary purchase based more on form than function.
Our dealers are also seeing an increased concern by homeowners for enhanced security. They are selling our doors based on their security and energy efficiency features.
Areas of Growth
Although sales for Energy Star-qualified products peaked in 2010 with the Tax Stimulus Bill coming to an end, we see energy efficiency continuing to be an important deciding factor in the purchase of products for the envelope of a home.
Forecast for Spacers and Energy Efficiency
Based on customer interviews at recent industry trade shows, the overall feeling in the industry is optimistic. This energy, plus the possible renewal of tax credits for energy efficiency, has sparked predictions that new home construction and the renovation market will increase in 2013 or at the very least, stay steady. Further, Energy Star version six updates are just around the corner, forcing a demand for higher performance products either to meet standard labeling requirements or the criteria for the ‘Most Efficient’ program.
One thing that’s for sure is that every major market in
the world continues to be focused on improving energy efficiency. Those
companies that intend to lead the market as the economy recovers are looking
In the energy-conscious global marketplace, high-performance spacer sales are climbing as markets are demanding triples. The markets in Germany, Austria and Switzerland are now claiming that 40-60 percent of IG units are now triple-pane.
Additionally, whether it is quality- or capacity-driven, there is also an unexpected heightened interest in investing in IG production processes to support higher performance spacer products. At recent American trade shows, there were positive reviews from equipment suppliers that proved companies are actively looking to invest in improving their spacer product offerings. That same feeling was also evident at glasstec 2012 where Lisec and Bystronic showcased cutting-edge spacer application equipment for improving quality and efficiency.
Making investments in better performing technologies, equipment and people as the market recovers is always a winning strategy. Those who invest early in 2013 in preparation for Energy Star version 6 will likely maintain their go-to-market strategy as leaders in the industry.
Door and Window Industry Forecast
Acquisitions will Increase
While there are a number of factors fueling growth in acquisitions, it is unlikely that plant expansions will return in significant numbers for the time being. There were 28 plant expansions in 2008 and that number has dropped to the point of there being virtually no plant expansions at all. Another activity that has been given lower priority since the housing bust is new product development. Most of the new product development over the past several years has been geared toward increasing energy efficiency. However, many companies have been forced to sacrifice new product development to the need to shore up declining cash flows. Over the next several years, the general recovery will allow a return to more broad-based new product development efforts in the industry as things return to a more normal state.
Tara Taffera is the editor/publisher of DWM/Shelter magazine. She can be reached at firstname.lastname@example.org. Follow her on Twitter @dwmmag, read her blog at dwmmag.com and like DWM magazine on Facebook.