Volume 8, Issue 8 - September 2007

The Flip Side of Doom and Gloom
Long-Term View of the Industry is Positive 

by Michael Collins

If you spend any amount of time listening to stories about the housing market in the popular media, you might reach the conclusion that Americans are abandoning the concept of living in homes in favor of tents or mud huts. With so much gloomy news about the housing market, this is an excellent time to review the reasons for bullishness about the residential door and window industry over the next ten years.

There are numerous reassuringly positive factors that are not mentioned in the doom-and-gloom stories regarding the housing market. First, companies in the door and window industry are relatively protected from foreign competition. This is not a contradiction of our research on the topic of increasing overseas competition. Such competition certainly exists and it is undeniably increasing, But, many door and window companies focus on small production runs of highly-customized products that must be delivered more quickly than is possible from an overseas location. 

Embracing Innovation
Another positive aspect of the industry lies in manufacturers’ intensive focus on product innovation. Constantly changing aesthetic preferences, unique new product features and an increase in the importance of energy efficiency drive the need for this innovation. While it requires a consistent investment of time and resources, innovative companies have the opportunity to charge premium prices for their products. In industries where innovation is less critical, on the other hand, products become commoditized and margins tend to collapse.

Demographic Factors
Among the most powerful forces supporting the door and window industry are the demographic factors that will shape the U.S. market in the years ahead. The median home in the United States is 32 years old, an age when homes need non-discretionary maintenance and upgrading. According to the Census Bureau, roughly 37 million single- and multi-family homes were built in the United States between 1959 and 1982, making them prime candidates for replacement doors, windows, and other exterior building products. 

The industry will also be supported by the spending behavior of various demographic segments. The Harvard Joint Center for Housing Studies predicts that members of Generations X and Y will spend even more on remodeling throughout their lifetimes than baby boomers because they will have greater wealth. For their part, as the baby boomers pass through their peak earning years, they are increasing their spending on remodeling or buying new homes. 

The growth of the U.S. population is another supportive factor for the door and window industry. The Census Bureau projects that the U.S. population will increase from 300 million to 400 million in the next 35 years. 

Changes in Homes
Other factors worth considering are the changing characteristics and uses of homes themselves. According to a report released by the National Association of Home Builders, the size of the average U.S. home has increased 50 percent since the 1970s. Between 2004 and 2005 alone, the average home size increased by 63 square feet, or about 2.7 percent. This trend toward larger homes leads naturally to more and larger doors and windows used per home. The improvements made in energy efficiency also allow the use of larger doors and windows.

Looking Ahead
We would not venture to guess the quarter in which the housing market will turn around. We do know, however, that it will recover eventually and that we are closer to the recovery than we are to the time when the downswing began. We maintain our very bullish outlook on the door and window industry in the years ahead and our positive assessment of the opportunities available to manufacturers in this segment. 

Michael Collins is a senior associate for Jordan, Knauff and Company, an investment banking firm that specializes in the door and window industry.



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