TrendTracker_DWM_March 2011

Volume 12, Issue 2 - March 2011

Trend Tracker

Industry Builds Momentum
by Michael Collins

A year ago at this time, it was very difficult to find optimistic or encouraging news to support a scenario for recovery in the door and window industry. Now, however, only a dedicated pessimist could deny that there are more positive winds blowing for the industry. In some cases, understanding the changes in certain indicators in a positive way is somewhat counterintuitive.

Home Ownership:
Still the American Dream
At first glance, a drop in the rate of home ownership from a peak of 69 percent of households in 2004 to 67 percent now would appear to be a negative sign for the industry. In 2010, the majority of the new households that were formed did, in fact, choose to rent rather than own a home. However, the fundamental goals and desires of Americans haven’t changed in a few short years. Americans aspire to own, not rent. As employment and consumer confidence improve, this reading will return to the long-term upward trend. This will mean millions of additional home purchases in the next ten years. With the recent drop in home prices, affordability of homes as measured by the median income also remains very high. This will support the return to long-term home ownership trends.

Multi-Family Market is Solid
While we are waiting for renters to become owners again, the multi-family housing market is expected to have a solid few years. There will be few completions this year, likely as a result of the lack of financing over the past several years. The growing number of renters has kept rent strong, leading to a new wave of investment in multi-family housing that is taking place now. Completions are predicted to be better in 2012 and quite strong in 2013. Builder confidence has been steady the last several months and capital is being committed readily to the multi-family sector.

Foreclosures Still a Factor
Some skeptical about the future direction of the industry would point out that the wave of home foreclosures continued and has even picked up in recent months. There was a slowdown in foreclosures late in 2010 as it came to light that many lenders had not followed proper protocols in undertaking the foreclosures. Having now demonstrated that they have taken the necessary legal steps to foreclose, the numbers are rising again. However, as those homes are being worked through the system, most will come back on the market in need of remodeling. Others will be knocked down in order to allow for the construction of new homes. Either way, an opportunity is created for building products manufacturers to sell products to the new homeowners. Another positive aspect of the foreclosure situation is that builders have seen the problem coming and have slowed their rate of new home building. New home completions have dropped more quickly than home purchases, resulting in a strong reduction in the inventory of new homes. As of January 2011, there were only 200,000 unsold new homes in the United States, about an eight-month supply.

Michael Collins is vice president of the building products group at Jordan, Knauff & Company, an investment banking firm that specializes in the door and window industry. He may be reached at mcollins@jordanknauff.com. His opinions are solely his own and not necessarily those of this magazine.