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New multi-family housing rides rollercoaster in 2017

January 8/15, 2018: Volume 33, Issue 15

By K.J. Quinn

 

Builders and residential contractors experienced a rollercoaster ride serving the multi-family housing market in 2017, observers reported, as this volatile business saw demand fluctuate by quarter and macro issues impede growth.

“When the final data come in, we expect multi-family starts to be down almost 10% over the course of 2017,” said Robert Dietz, senior vice president and chief economist, National Association of Home Builders (NAHB). “We expect multi-family development to record additional, slight declines [in 2018].” Multi-family housing includes low-rent units and market-rate rental units in addition to condominiums.

Multi-family housing starts and permits (five or more units) declined 12% in October 2017 compared to the same month in 2016, according to the U.S. Census Bureau and U.S. Department of Housing and Urban Development (HUD). Additional construction data from Dodge Data & Analytics—which includes some units the Census Bureau and HUD consider single family—provide further evidence the market is in decline. “The [numbers are still being crunched for 2017] but we’re on track for multi-family housing starts as they are measured by Dodge to decline 7% to 475,000 units,” Kim Kennedy, manager of forecasting, said at the end of 2017.

Like peeling an onion, additional layers must be uncovered to view construction data in its entirety. The latest Census Bureau and HUD housing data reveals multi-family housing starts consisting of five or more units jumped 37% from September to October to a seasonally adjusted annual rate of 393,000 units. Authorization of building permits in housing with five units or more rose 13% to 416,000.

New multi-family construction saw fluctuations in market conditions influenced by such factors as Mother Nature, the economy and changing homebuyer demographics. For example, the supply of apartments and condominiums surged in recent years as builders responded to rising demand fueled in part by young Americans who preferred to rent rather than purchase a home in the aftermath of the recession, according to published reports. “Rental housing demand should remain solid, but it is no longer growing as it did in the year immediately after the Great Recession,” NAHB’s Dietz said. “Thus, the multi-family sector is currently seeking a balance between supply and demand.”

The market recovered approximately 96% of the previous, bubble-induced peak of 508,000 housing starts set in 2005, Dodge’s Kennedy observed. “Because multi-family recovered quickly beginning in 2010, it is also peaking earlier than single-family housing for this construction cycle. The 2016 level is very likely the peak for this cycle.”

Macro issues such as escalating building materials and labor costs are contributing to rising home prices while leaving less discretionary money for buyers to spend on flooring upgrades. Finding enough buildable lots to keep up with demand remains a major hurdle for the construction industry. And perhaps the biggest issue of all is a tightness in labor nationwide, which is reportedly contributing to keeping single- and multi-family housing markets from being overbuilt.

“Multi-family is solid, but there is some slowdown in new construction in certain markets,” noted Jay Smith, president, FEI Group, a nationwide network of interior finish contractors and showrooms that includes MultiFamily Solutions by FloorExpo.

One trend expected to continue is the movement toward smaller home designs, which traces its roots to around the time when the housing bubble burst. The average multi-family property is reportedly getting smaller, following years in which builders disproportionately constructed high-end homes. This situation may be short-lived, however, as multi-family developers build more for-sale housing units in the years ahead and older millennials settle down and start raising families.

“There is a trend toward smaller units but this only means more units and not less square footage as overall building sizes aren’t decreasing,” explained Randy Rubenstein, owner, Rubenstein’s Contract Carpet/North American Terrazzo, a Seattle-based flooring contractor. “But one trend we’re noticing is the increase in amenity floors trending with higher-end finishes.”

Demanding but lucrative
The overwhelming majority of residential flooring contractors are large, highly sophisticated and well-financed specialists. While multi-family housing can be a lucrative business given the amount of volume and growth prospects, it requires the necessary resources and financial wherewithal to keep up with daily service demands. “The overhead costs often exceed the margins,” noted Ron Dunn, co-founder and co-CEO of Alliance Flooring, the parent company of brands CarpetsPlus/Color Tile, Carpetland USA Color Tile, Floorco and Clean Touch Pro. “Most flooring dealers that are doing property management work typically specialize in it, and it is their main business model.”

Production building is a highly transactional business that requires builders’ dealers to pay close attention to managing their daily operations and overhead. If they cannot provide timely, cost-effective, turnkey service, builders have more options at their fingertips. “Dealers [serving] these markets will need to bring speed of service, high levels of productivity, modern systems, deep capital position, the appropriate facilities and readiness to satisfy very demanding customers,” FEI Group’s Smith said.

While the segment is highly specialized, there are similarities with the commercial flooring business. “It’s really no different than any other major commercial construction project, with all of the same challenges since the major high-rise multi-family projects are being built by the same large general contractors who are also doing non-residential work,” Rubenstein said.

Finding and maintaining installation crews who can quickly install flooring in large projects is a major challenge given the restricted labor market and higher wages paid to skilled workers. “Dealers need a lot of installation crews and operational assets to service multi-family builders,” said David Holt, Mohawk Industries’ senior vice president of sales. “If they screw up with those builders, they’re going to go out of business.”

Similar to a doctor, dealers are always on call as notifications for next-day installations can be received in less than 24 hours. “This requires manufacturers and flooring dealers to be in sync with product and inventory needs like never before,” said Brad Christensen, vice president, business strategy, builder, Shaw Floors. “Flooring dealers, in an attempt to become more efficient, have inventories as lean as possible and, as a result, they have been very savvy with the management of their SKUs and do their best to avoid duplication.”

Working with flooring suppliers who provide high-quality products and, when necessary, are there to help minimize the impact of installation callbacks is imperative. “That way, the builder can continue to look forward to knowing you are there to take care of any problems,” said Rob Brockman, channel marketing manager for contractor, builder, developer and property manager at Armstrong Flooring. “Building a strategic partnership focused on the builder’s needs is the challenge that is built over time on a foundation of trust.”

Flooring choices evolve
Whether it’s inside a dealer or builder showroom, multi-family homebuyers are given opportunities to upgrade to better quality flooring. The incentive for builders and dealers to encourage upgrade purchases is two-fold: It ensures customers receive a good-looking, high-performing product that meets their expectations and profit margins are considerably higher than base-grade products. “Consumer knowledge and education result in higher sales dollars for the same amount of work,” Alliance Flooring’s Dunn pointed out. “It’s a win-win-win for the builder, the homeowner and the flooring dealer.”

Most flooring upgrades are allocated for kitchens and baths, experts noted, because both areas offer the greatest return on investment and time spent in the home. “Large kitchens and open-concept design are still things that homebuyers seem to want,” Armstrong’s Brockman said. “This creates an opportunity to sell upgrade flooring as there is no real separation of spaces in these open plans.”

While flooring choices vary by region, carpet is the leading surface for multi-family spaces, though hard surfaces and higher-end goods are trending up, suppliers reported. “In multi-family homes, many people have pets,” Mohawk’s Holt noted. “So carpet is being replaced more frequently, usually within four to five years.”

New hard surfaces such as LVT and WPC are reportedly gaining coverage in multi-family environments. “Buyer preferences are leaning toward hard surfaces—mainly LVT—because of their great looks, durability and water resistance,” Brockman added.

Homebuyers still desire natural products such as ceramic tile and hardwood, which studies indicate add value to the home. Upgrades to these higher-priced products are becoming more prevalent given looser loan standards that help customers secure additional financing. “We’ve seen strong growth in town homes and patio homes in which higher quality floor coverings and better finishes are being selected,” Alliance Flooring’s Dunn said.

Looking ahead, the multi-family housing channel represents a lucrative opportunity for dealers who are well positioned to service the many needs of builders and homebuyers. “FloorExpo [believes] the multi-family and builder segments to be the most challenging in flooring,” FEI Group’s Smith said. “If done right, dealers can be very successful.”

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Housing: No records shattered, but progress nonetheless

June 26: Volume 32, Issue 1

By Reginald Tucker

 

Screen Shot 2017-07-05 at 9.45.38 AMThe U.S. housing market continued movement in a positive direction in 2016. Figures supplied by the U.S. Census Bureau show total housing starts reached 1.1738 million units last year—an uptick of 5.5% over 2015’s 1.1118 million units and nearly 17% over 2014. More importantly, it’s the highest number the industry has seen since 2007, when 1.355 million starts were registered. (If you recall, that’s the year before the housing market literally fell of the cliff.) For perspective, from 2008 through 2013, housing starts consistently dipped far below the 1 million contract benchmark, ranging between 608 million and 924 million starts over that time period.

But things have turned around since then. Based on a geographic breakdown of total housing starts—which includes both single- and multi-family units—the South region led the pack with just over 584,000 units—up 5.2%, while the West generated the second-highest number of starts at roughly 290,000, up 9.5%. The Midwest region came in third with just a little over 182,000 starts, an increase of 19% over 2015, while starts in the Northeast actually dipped 16% to 116,000.

In the bellwether single-family category, total starts in 2016 reached 781.5 million, an increase of 9.3%. The multi-family sector as a whole, however, did not fare quite as well last year, statistics show. Housing starts entailing five units or more came in a tad over 380,000 units in 2016, a 1.3% dip from 2015. Still, multi-family starts encompassing five units or more grew each year from 2009-14, starting with just 97,000 starts in 2009 and rising to just over 347,000 starts in 2014. Meanwhile, multi-family starts covering two to four units were flat in 2016, maintaining a meager level of just 11,500 ground breakings.

The year 2016 also finished strong in terms of value. Data analysis conducted by the National Association of Home Builders (NAHB) shows total private residential construction spending grew 0.5% in December 2016 to a seasonally adjusted annual rate (SAAR) of $466.9 billion. After slowing in August and September the SAAR of spending on residential construction finished 2016 with its third consecutive monthly increase. Looking at 2016 as a whole, the value of all private residential construction put in place reached $456.2 billion (not seasonally adjusted) in 2016, 5.2% higher than the total for 2015 ($433.7 billion).

In terms of housing sales, Business Insider called 2016 the “best year for the housing market since the financial crisis.” Total existing-home sales—completed transactions that include single-family homes, townhomes, condominiums and co-ops—finished 2016 at the highest level since 2006 (6.48 million), surpassing 2015’s 5.25 million, according to statistics released by the National Association of Realtors (NAR). “Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market,” said Lawrence Yun, the association’s chief economist.

Outlook for remainder of 2017
All this bodes well for the housing market this year, observers say, despite ongoing challenges facing the builder community. Fueled by a growing economy, solid employment gains and rising household formations, single-family production should continue on a gradual, upward trajectory in 2017. So said Robert Dietz, chief economist with NAHB, during an address to attendees of the International Builders Show in January.

“While positive developments on the demand side will support solid growth in the single-family housing sector in 2017, builders in many markets continue to face supply-side constraints led by the three ‘Ls’ – lots, labor and lending.”

Dietz added that 64% of builders nationwide report low or very-low lot supplies and that the rate of unfilled jobs in the construction sector is now higher than the building boom. What’s more, acquisition, development and construction loans for builders—while on the rise—needs to grow faster to meet demand, he added. “The industry needs to recruit more workers and get more land in the pipeline, but it will take time.”

However, Dietz stressed that these supply-side challenges are more than offset by continued economic growth, ongoing job creation, rising wages and favorable demographics. Moreover, builder confidence is up on anticipation the Trump administration will help lower regulatory costs going forward.

“Regulatory requirements make up nearly 25% of the cost of a new home,” Dietz explained. “Given those constraints, it is hard to build a $200,000, entry-level house.”

Other reports support a positive outlook. NAHB is projecting 1.16 million total housing starts in 2016, up 4.9% from the previous year’s total of 1.11 million units. Single-family production is expected to rise 10% in 2017 to 855,000 units and increase an additional 12% to 961,000 next year. Setting the 2000-2003 period as a benchmark for normal housing activity when single-family production averaged 1.3 million units annually, single-family starts are expected to steadily rise from 56% of what is considered a typical market in the third quarter of 2016 to 75% of normal by the fourth quarter of 2018.

On the multi-family front, NAHB is anticipating starts to hold steady in 2017 at 384,000 units, which would be 1,000 units above last year’s pace. While this level is slightly above trend, Dietz noted this pace is sustainable due to demographics and the balance between supply and demand. Also, as the economy continues to grow, NAHB expects mortgage interest rates will average 4.5% in 2017 and 5.3% in 2018. Meanwhile, residential remodeling activity is expected to register a 1% gain this year.

Policy impacts
Ultimately, observers say, continued progress will be contingent on the political climate. “Policy changes under the new Administration—in its nature, sequencing and magnitude—will determine the direction of economic growth in 2017,” said Doug Duncan, Fannie Mae chief economist. “Incoming data suggest improving consumer spending, diminished labor market slack and advancements in wages, but until we can more clearly read the political tea leaves, it’s difficult to say whether this late-cycle expansion will continue into its eighth year. Thus our theme for the year: ‘Will policy changes extend the expansion?’ If stimulus policy is enacted, it would likely add to growth but could also be offset by potential tightened trade policy given the already historically strong dollar.”

All things considered, Fannie Mae expects housing to remain resilient and continue its recovery in 2017, with affordability standing out as the industry’s greatest obstacle, particularly for first-time homeowners. “Demographic factors, however, are positive,” Duncan said. “Our research shows older millennials have begun to buy homes and close the homeownership attainment gap with their predecessors.”

Indeed, for the third straight year, millennials represented the largest group of recent buyers. According to a study compiled by NAR, this group accounts for 35% of all buyers, up from 32% in 2014. That’s more than the combined amount of younger and older boomers (31%). By comparison, Generation X represented 26% of buyers.

The study, titled “Home Buyer and Seller Generational Trends,” evaluates the generational differences of recent home buyers and sellers. It shows a growing share of homebuyers are millennials, and more of them are purchasing single-family homes outside of urban areas. The share of millennials buying in an urban or central city area decreased to 17% vs. 21% a year ago while fewer of them (10%) purchased a multi-family home compared to a year ago (15%).

Overall, the majority of buyers in all generations continue to purchase a single-family home in a suburban area, and the younger the buyer, the older the home they purchased.

Another interesting tidbit: While millennials may choose to live in an urban area as renters, the survey reveals that most aren’t staying once they’re ready to buy. “The median age of a millennial homebuyer is 30 years old, which typically is the time in life where one settles down to marry and raise a family,” NAR’s Yun explained. “Even if an urban setting is where they’d like to buy their first home, the need for more space at an affordable price is, for the most part, pushing their search further out.”

 

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HomeAid America receives Mohawk Industries grant

HomeAid America Logo 2014 - smallNewport Beach, Calif.—HomeAid America, a nonprofit that provides housing to organizations helping the homeless throughout the country, has been selected to receive a $50,000 donation from Mohawk Industries.

HomeAid America was awarded a grant to oversee its programs, which build housing and other facilities for homelessness service providers and undertake community outreach activities to provide facility renovation or operational assistance for the programs of these service providers.

Karen Mendelsohn, senior vice president of marketing, represents Mohawk on the HomeAid America board of directors.

“HomeAid is a strong steward and partner in lifting up those in our nation who are in the greatest need of help,” said Mendelsohn. “HomeAid’s values are consistent with Mohawk’s. We both look for better ways of delivering results, and we are both dedicated to driving positive change.”

mohawkHomeAid shelter projects are built for charities helping the homeless in its 17 communities. Over 3.5 million people experience homelessness in the U.S. each year, including young families without a financial safety net, victims of domestic violence, youth aging out of the foster system and veterans coming home from war. The charities HomeAid builds for provide support services—such as education and job-skills training, financial counseling and both physical and emotional support—that help residents move toward self-sufficiency.

“For generations, Mohawk’s products have been synonymous with creating stylish, comfortable homes, so promoting universal access to sustainable housing is a natural area of focus for us,” Mendelsohn said. “Our support for HomeAid is consistent with existing national partnerships with organizations such as Habitat for Humanity and Building for America’s Bravest that support stable housing as well as with local nonprofit groups with similar goals that do important work within their communities.”

HomeAid America CEO Peter Simons said, “Mohawk has shown amazing generosity for our cause through this grant. We are honored for the faith they have shown in us to help the homeless around the country, and we are proud of our 28-year history of doing just that.”

To learn more about HomeAid America, visit www.homeaid.org. For more information on Mohawk and its products, visit www.mohawkflooring.com.

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Hardwood: State of the industry—Housing sector, engineered sales drive revenues

March 27/April 3, 2017: Volume 31, Issue 21

By Reginald Tucker

 

Screen Shot 2017-03-31 at 10.18.34 AMBy most accounts, 2016 was a respectable year for North American hardwood flooring manufacturers. Anecdotal information combined with preliminary estimates show the category grew between 5.5% to 6% in 2016, with volume increasing roughly 5%. That would put sales at the first point of distribution somewhere between $2.17 billion and $2.2 billion in sales with volume in the range of 860-880 million square feet.

While manufacturer estimates vary widely, suppliers are in general agreement on several points: Strong end-use sectors combined with high-performing sub-categories and innovative formats within the hardwood flooring sector are sustaining revenues.

“Primarily new home construction and residential replacement are the sectors driving the most growth for hardwood,” said Dan Natkin, vice president, wood and laminate, Mannington. “The category continued to increase in 2016, albeit at a slightly slower pace—3%-4% over the prior year.”

Other major manufacturers were also conservative in their estimates. “Last year was a fairly good year in hardwood sales with the category up by low- to mid-single digits,” said Christopher Moore, wood product manager, Armstrong Floors. “While the new home construction sector did not reach the lofty highs that many expected, a modest movement helped to lift sales of hardwood flooring to a respectable level in 2016.”

Some estimates were much more aggressive. Mohawk, which also counts the Quick-Step wood line among its brand assets, believes the prefinished hardwood flooring market grew close to 10% in 2016 vs. 2015. “The majority of this growth was driven by the new construction market, both in single-family and high rises,” said Roger Farabee, senior vice president, wood and laminate. “Remodel grew as well but at a slower rate. Commercial had the lowest growth and remains a very small part of the overall hardwood market.”

Within the prefinished segment, suppliers saw particularly brisk activity on the engineered side of the business. Indeed, in 2015 the industry saw a continued shift in the ratio of engineered to solid production. In fact, more manufacturers are developing engineered products that mimic the thickness of solid but offer the performance attributes of engineered. (Lauzon’s new Organik series, which features the company’s innovative Pure Genius anti-microbial technology, is a case in point.)

The trend toward wider plank visuals lends itself to engineered given their enhanced stability, experts say. Natkin estimates engineered will represent 60% of the hardwood market within the next two years—up from about 50% today.”

Screen Shot 2017-03-31 at 10.18.27 AMThe continued shift from solid to engineered is increasingly evident, experts say, especially as imports continue to take market share from domestic manufacturers. Brad Williams, vice president of sales and marketing for Boa-Franc, makers of the Mirage brand, cited several reasons why these thicker engineered products continue to increase their share. “With the builder market using wood subfloors, their goal is to make a flush transition with ceramic floors in the kitchen, bathroom, etc. As ceramic tiles trend larger and thicker, it’s a nice option to have the same in hardwood—wider and thicker. There is also the renovation market where flooring ripped out was ¾ inches thick. It makes for an easier renovation as the heights for doors and cabinetry were done based on ¾- inch thickness.”

For some buyers, it boils down to personal preference. As Michael Barnett, wood product manager, Armstrong, explains: “Innovation continues to happen across both structures and, of course, engineered offers opportunities for design innovation combined with its installation flexibility. While solid wood continues to be a coveted choice for homebuyers, certain looks, lengths and widths can be achieved with engineered that either do not exist with solid or are more challenging to produce. Engineered hardwood floors are also better suited than solid in certain installation applications, such as basements.”

The ongoing migration to engineered hardwood is reflected in the investments major manufacturers are making in the segment. Shaw Floors, for instance, completed the expansion of its hardwood flooring manufacturing facility in South Pittsburg, Tenn., specifically to meet the growing demand for its engineered hardwood flooring products. According to Vance Bell, chairman and CEO, the $40 million investment adds more than 60% capacity to the existing hardwood manufacturing facility. “The expansion of our South Pittsburg engineered hardwood facility is a prime example of our continued investment in new product development and advanced manufacturing practices. Hardwood is important to Shaw’s business growth strategy.”

Shaw is not the only company heavily investing in engineered production. Last summer Mullican Flooring announced plans to invest $15 million in equipment, buildings and working capital to expand its manufacturing operations via the acquisition of a 126,000-square-foot warehouse in Johnson City, Tenn. This latest expansion, which marks Mullican Flooring’s fourth major growth initiative in Johnson City during the past 16 years, will provide extra capacity as well as raw material and finished product storage space to meet increased manufacturing needs.

In that same vein, Wickham Hardwood has invested more than $7 million in a new, state-of-the-art engineered flooring line. The game plan over the mid to long term, according to Paul Rezuke, vice president, residential sales, USA, is to align its engineered offerings with its solid products.

Pricing stability
Screen Shot 2017-03-31 at 10.18.14 AMAnother factor that has positively impacted U.S. hardwood flooring manufacturers is the continued stabilization of raw material costs. In 2013 and into 2014, skyrocketing lumber costs negatively impacted margins for many suppliers—including Canadian companies—and forced several market leaders to raise prices. But manufacturers report the raw material pricing stability they experienced in late 2015 has carried over to much of 2016.

“There is great pricing stability at the moment,” Boa-Franc’s Williams said. “We believe the demand from overseas has softened with North American suppliers, which creates more of a need to supply the local market here in North America, so pricing is holding steady. At the same time, inventories throughout the pipeline are at good, balanced levels—which also contributes to stable prices.”

For Mohawk, lumber pricing stabilized overall in 2016—a trend that, according to Farabee, seems to be holding steady so far in 2017. “But this could change if demand for certain species (e.g. white oak) outstrips supply.”

That’s a real concern for some suppliers. Mannington’s Natkin says raw material prices are still high but have been stable through the first quarter of 2017. Certain species, such as hickory, walnut and white oak, he said, are showing modest inflation. “But it is generally under control for the time being.”

Stiff competition
While hardwood suppliers are keeping a close eye on raw material costs, they are also watching the rising popularity of competing hard surface products, particularly those that are doing a much better job of replicating natural materials such as wood. WPC, LVT and, yes, laminate all fall into this category.

Wood suppliers agree some of their products could be ceding market share to these competitive categories. “For the first time in my career, I can definitively say some of these categories have taken share within certain segments from hardwood,” Natkin said. “Particularly in new home construction, both single- and multi-family units.”

Others are not as concerned. Armstrong’s Moore believes that as long as hardwood itself is desirable, there will continue to be a proliferation of wood looks, whether in resilient, tile or laminate. “While hardwood is challenged by some look-alike products, we believe genuine hardwood flooring will continue to be desired by homeowners because of its natural beauty, enduring quality and durability. This is an investment that lasts for years and offers timeless style.”

Screen Shot 2017-03-31 at 10.18.48 AMMohawk’s Farabee agreed, adding: “Hardwood remains the top aspirational hard surface flooring product, and we don’t see that changing anytime soon. While the other categories have done a better job imitating wood, many customers don’t want an imitation; they want the real thing. No other product will ever be able to duplicate the 100% custom, unique look obtained with every hardwood floor that is installed.”

Williams believes some wood products—especially those on the lower end of the price spectrum—have ceded some market share to competing categories, but he thinks that pressure is coming primarily from builder and residential renovation markets, which tend to be more cost conscious. On the whole, though, he has not seen any dramatic market share shift from a numbers point of view to substantiate and support this increase is coming at the expense of wood.

Mitigating factors
Beyond pricing/raw material costs and competitive pressures (both within the category and externally), suppliers identified other issues that stand to impact hardwood’s growth. These range from global competition to changing retail dynamics right here at home.

“Imports continue to be unfairly dumped at low prices,” Natkin said, adding this is an issue primarily with engineered hardwood. “Despite the ITC actions, there is rampant circumvention and the U.S. government has failed to act on any of it.”

For Armstrong, one of the issues in the hardwood industry right now seems to be private-label imports. “At the entry level, where the growth rates are highest, most of the competitive landscape is dominated by imports, which keep margins thin,” Barnett said.

Mirage’s Williams also expects to see an increase in imports as well as additional pressure from “look-alike products” from other categories. But he also thinks home centers and large retailers are getting bigger and taking market share from the smaller independents. “Private-label programs also continue to take market share.”

Outlook for remainder of 2017
Despite these pressures, many suppliers are optimistic hardwood will continue to hold its own as a category. They cite, among other things, continued investment in manufacturing and innovation as well as strong demand among consumers and end users.

“The housing market will continue to strengthen, although single-family starts and completions remain more than 20% lower than the historical average,” said Neil Poland, president Mullican Flooring. He expects to see growth in the 4%-5% range for 2017. “Engineered flooring will lead this growth as housing grows more rapidly in Sun Belt markets.”

Others are more bullish with their projections. “We are confident that—if interest rates remain constant and the U.S. economy continues to be positive—growth will be in the 6% to 10% range,” Wickham Hardwood’s Rezuke said. “Our opportunities will derive from our increased expansion in the U.S. market, along with successful implementation of new products.”

Shaw also expects to see growth in the 6%-8% range for 2017, based on trends it is seeing in the new home construction market. “We will continue to outpace the growth of the flooring market,” said Drew Hash, vice president, hard surfaces. “Our wide breadth of categories and consistent standard of quality supports that outlook.”

 

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As housing market rebounds, dealers seize opportunity

Aug. 17/24; Volume 30/Number 5

By Ken Ryan

Screen Shot 2015-08-26 at 11.26.18 AMThe National Association of Realtors (NAR) reported earlier this month that existing home sales in the second quarter increased in 93% of the metro areas it measures, an encouraging sign the housing industry is continuing its recovery.

For many flooring dealers, that news merely confirms what they already see in the marketplace: flourishing business fueled by housing and other economic data.

Louisville, Ky., seems to be an especially vibrant market, at least according to Sam Kinnaird’s Flooring and The Flooring Gallery, which together have eight stores.

“I have definitely seen an increase in our business in the last few months,” said Jim Mudd, president and owner of Sam Kinnaird’s. “I would like to say the strengthening of the housing market is the main reason, but I really believe the fact that the consumer finally believes that low gas prices are here to stay for some time is kicking this thing into high gear. This low gas price windfall is pushing new housing along with remodeling work. Both of these [conditions] have finally started to catch up with our commercial side. There is light at the end of that tunnel.”

Nick Freadreacea, president of The Flooring Gallery, said the builder/new construction business “is showing steady growth in our markets since the beginning of the second quarter and the balance of the year looks strong. I have spoken with several board members of the WFCA [World Floor Covering Association] who are retailers also reporting strong growth.”

Regionally, existing home sales in the Northeast increased 10.3% in the second quarter and are 8.6% above where they were during the same period last year, according to the NAR.

Dealers in the Northeast are not surprised. Mike Foulk, president of Foulk’s Flooring America in MeadvillScreen Shot 2015-08-26 at 11.26.48 AMe, Pa., said he has seen an uptick in both new housing starts as well as a “larger than normal amount of housing sales. In our area the realtors have a low inventory of houses to show which is fueling a bump in new housing.”

A.J. Boyajian, co-owner, A.J. Rose Carpets & Flooring, with three Massachusetts locations, added, “The housing market in the Boston area is very strong and we have seen an increase. When people move on, one of the things they often look to do is replace a floor in the new home. So when people are moving we see an increase in business. Also, when property values go up people often look to put money into their homes and flooring is a very popular option when it comes to renovating.”

Bill Zeigler, owner of Charles F. Zeigler & Sons, Hanover, Pa., a Mid-Atlantic market, said his company’s focus is on remodel/replacement “so we always benefit when people start moving around. If they move into a new house, someone is buying their existing home. The last half of the second quarter, and the third quarter to date, have been very strong. I see this continuing at least until yearend. It seems like financing companies have lightened up a bit so even more money is available.”

The Midwest’s existing home sales rose 13.4% in the second quarter and are 12.7% higher than a year ago, the NAR reported. CAP Carpet, which owns seven branded stores including a Carpet One Floor & Home location, a ProSource Wholesale Floorcoverings, a Big Bob’s Flooring Outlet and Floor Trader stores, has enjoyed the consistency of the Midwest market, according to Aaron Pirner, president and owner. “We are seeing a limited supply of homes and good demand. The combination of the two is driving business.”

Eric Langan, owner of Carpetland USA, with locations in Iowa and Illinois, said what is driving strength in the Eastern Iowa and Western Illinois marketplace are “an increase in consumer confidence, very low interest rates, a performing stock market and a lack of current inventory. The good thing about living and working in the Midwest is that we do not typically see the highs and lows and hostility that other markets see in regard to housing, unemployment, etc. Therefore, we’re able to capitalize on the good times and don’t necessarily fear the bad times.”

In Cincinnati, Sam Presnell, owner of The Rug Gallery, said he is predicting a better fall because of the NAR report. “Our traffic has been up the last two months over 2014, which would signify interest. That should start producing real numbers by late August.”

According to Sam Roberts, owner of Roberts Carpet & Fine Floors in Houston, all economies are influenced to differing—but usually significant—degrees by local realities. “The price of oil is certainly impacting the local economy in Houston. When you speak of stronger local job markets, folks around here would wonder what you are talking about [because the job market has been strong].”

Construction of larger projects, Roberts said, particularly in commercial, will also affect the market, with less fluctuation than residential due to the nature of builder business. “When it comes to the effect of economic circumstances on the flooring business, you might think of retail as being like a jet ski—very quickly accelerated or slowed and turned on a small radius. The builder and commercial business is more like a large tanker. Whatever is initiated takes quite a bit of time to take full effect. Our urban development business is very strong, and will likely remain so for at least 18 more months. These are mostly big projects that take one to three years to reach full fruition.”

Olga Robertson, president of the FCANetwork, said that while there are good housing numbers, home values have risen to a point where it is difficult for first-timers to purchase a home. “What we need in this country are good-paying jobs. Combine that with low mortgage rates and you’ve got a recipe for a robust housing market. Amazon just announced [it is] opening up a distribution center near Chicago and would be hiring over 1,000 people, and the media is giving them a lot of kudos. What’s so good about hiring 1,000 people and paying them $13 an hour? You can’t buy a house making $26,000 per year. That being said, there are certainly some markets that are better than others, and many of my dealers in Colorado, Kansas, Wisconsin, Arkansas and Texas are doing extremely well.”

In terms of demographics, while millennials have been the focus for housing market potential, Robertson sees more opportunity with the baby boomer generation. “I believe what’s driving some of those numbers is senior living communities,” she said. “The boomers are downsizing and want to live in an area with other boomers. Socializing is the key to longevity and aging boomers still control most of the disposable income. I do know that millennials now outnumber the boomers but they are in debt up to their eyeballs with student loans so it may be eight to 10 years before they even consider buying a home.”

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The most overlooked economic stat is poised for a comeback

I know our 16,000-plus subscribers read Floor Covering News, but I’ve always wondered exactly how they read this publication. Do they read it cover to cover, do they just read headlines, or do they simply read the features that most interest them?

Those readers who do not peruse every article may have missed something in our last issue (Feb. 4/11) in which they should be most interested. I’m referring to our coverage of the Shaw Flooring Network convention. I accept the possibility that those who are not part of SFN glanced over the article. But there was something there that every single person in our industry needs to understand. Continue reading The most overlooked economic stat is poised for a comeback