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State of the Industry: The builder business is back

January 2/9, 2017: Volume 31, Number 15
By K.J. Quinn

Fueled by significant gains in single- and multi-family units, the new housing market skyrocketed by 25.5% in October, an indication one of the major drivers of the U.S. economy and flooring industry is moving full steam ahead.

screen-shot-2017-01-09-at-2-24-55-pm“The builder market is showing improvement,” observed Dawn McElfresh, builder channel marketing manager, Armstrong Flooring. “The variety of homes in production is helping our mix. Single-family price ranges, both high and low, are selling, as are condos and new multi-family buildings.”

Housing starts reached a seasonally adjusted annual rate of approximately 1.3 million in October, the highest pace in nine years, according to the U.S. Department of Housing and Urban Development and the Commerce Department. Multi-family production rebounded, as starts in buildings with five or more units—such as condos and apartments—climbed almost 69% in October to reach 454,000 units, an indication developers continue hedging their bets on this segment. “2016 marked the first year since the Great Recession that single-family construction grew faster than multi-family,” said Robert Dietz, chief economist at the National Association of Home Builders (NAHB).

Single-family starts rose nearly 11% in October, reaching a nine-year high with a rate of 869,000, gains which confirm economic forecasts that the housing market will steadily improve into 2017, according to published reports. “The single-family channel was also very strong for FEI Group members,” David Gheesling, CEO, said. “We expect to see it grow as much as 10% nationally going into 2017.” The group is a network of flooring contractors, cabinetry and countertop dealers, and decorative hardware and plumbing businesses.

Housing permits—which provide a snapshot of pending new construction—grew at a much slower pace. Nonetheless, the 0.3% increase over September for privately owned housing units boosted the seasonally adjusted rate to 1.23 million in October, a new high water mark for 2016. Ground is usually broken within 30 to 60 days after a permit is issued. The builder market is significant to the flooring industry, as approximately one-third of total flooring sales are generated from this segment and a similar percentage of dealers service this business. A firming job market, growing U.S. economy and rising household formations are expected to keep the housing recovery on track into 2017. “Despite rising interest rates, wage gains and job growth are supporting housing demand,” NAHB’s Dietz said. “The industry continues to rebuild its infrastructure, including land and workers, following the Great Recession.”

 

Issues stunting long-term growth
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Further evidence the housing market will sustain growth into next year is provided by the Architecture Billings Index (ABI), whose October score indicated a modestly larger share of architecture firms reporting an increase in their billings, according to the American Institute of Architects (AIA). However, fewer firms reported a bump in inquiries for new projects in November, and firms also cited declining value of new design contracts signed in October. While none of these indicators signals immediate alarm, AIA stated, it is important to keep a close eye on business conditions over the coming months.

Similar sentiments were expressed in industry circles about whether the builder business can sustain growth over the long haul. Rising mortgage interest rates can quickly temper expectations. “However, rates are historically low, so that impact should be modest,” Dietz said. “The primary challenge for prospective home buyers remains saving for a down payment and qualifying for a mortgage.”

New residential construction data can be skewed by regions that enjoyed growth beyond the numbers. For example, while permit issuance rose 12.1% in the Midwest and 7.5% in the West, the Northeast and South saw this number drop by 21.1% and 2.4%, respectively, according to published reports. “We are pretty much flat in builder [market sales] so far this calendar year compared to 2015,” said Larry Barr, president and co-CEO, Floors Inc., based in Southlake, Texas. “As we have seen more starts in each of our markets, the builders are struggling to turn the houses over due to labor constraints.”

The availability of qualified labor in all trades remains a major concern for the channel and continues to limit industry output. While builders are adding jobs, attracting the next generation of construction workers remains a long-term challenge. “In most markets, builders are struggling to find workers in every area, from slab to landscaping, in the construction process,” said Jeff Ausloos, national builder manager, Mannington.

The shortage of flooring installers remains an industry bugaboo, making it difficult for builder dealers to find good help when they need it. Some regions face a shallower pool of craftsmen than others, which can directly impact flooring selections. “In Texas, for example, because of a shortage in ceramic installers, some builders are moving into LVT because they can get a sheet installer to put it in,” Armstrong’s McElfresh said.

 

Housing trends affect floor covering sales
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One trend expected to continue into the New Year is the movement toward smaller home designs, which traces its roots to around the time of the housing market downturn. As homes become smaller, flooring choices for specific areas will be impacted, in part, by how these spaces are utilized. For example, carpet is projected to remain a go-to product for living rooms although hard surfaces are growing at a much faster rate.

“The next generation of LVT [and] WPC products are rapidly gaining acceptance in the new home construction segment,” Mannington’s Ausloos said. “As the innovation in WPC continues it will become a staple product in the channel.”

Still, new home buyers are eager to choose different floors for individual rooms, industry members say. For example, resilient is often specified for a bathroom or laundry room, laminates can be found in a family room or basement, and carpet, ceramic and hardwood are selected for main living spaces and bedrooms. “Millennials who are coming into the market might be looking for smaller but nice homes,” McElfresh said. “We’re seeing a good interest in LVT products for this reason as well.”

Homebuyers still desire natural products such as ceramic tile and hardwood, and upgrades for these higher priced floors are becoming more prevalent. Most upgrade monies are allocated for kitchens and baths because both areas offer the greatest return on investment and time spent in the home. “For new homebuyers, hardwood continues to be the trophy flooring,” McElfresh said. “As the market continues to improve, we see further investments in trade-ups since homeowners are looking for homes not purely for resale value, but for their own comfort and pleasure.”

In addition, homebuyers planning to be long-term occupants are willing to invest in better quality products. “They realize the long-term value of upgrading to better looking, better performing products,” Mannington’s Ausloos said. “We are seeing trends that verify this in our upper-end hardwood lines Maison and Antigua.”

Ceramic as a percentage of total flooring in new homes continues to rise as it finds more applications in spaces such as patios, garages and basements. “We have also seen more tile sales compared to carpet, for the first time,” Floor Inc.’s Barr said. “I believe this is because there are an abundance of lower priced, good looking tiles that buyers find attractive.”

Industry members cite the importance of educating new homebuyers about the features/benefits of flooring so they can make informed purchasing decisions. Products which provide a logical “trade up” story can have a real impact on upgrade sales.

“If there’s true differentiation from one level to the next, it’s likely that a consumer will choose the upgrade,” Ausloos said. “One builder that Mannington does business with in the Northeast has seen homebuyers selecting upgraded Maison and Antigua hardwood collections 44% of the time.”

As the housing market continues to grow, multiple flooring choices are expected to reap the benefits. Considerations such as budget, styling and value play a major role in determining which products are chosen for different areas inside the home. “We address each of these needs in a big way, with the broadest collection of products for every type of home, in every region of the country,” McElfresh explained.

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Housing starts up 6.3% in September

Screen Shot 2014-10-17 at 12.25.10 PMWashington — For the third time this year, nationwide housing starts surpassed the 1 million mark, according to newly released figures from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. Total housing production in September rose 6.3% to a seasonally adjusted annual rate of 1.017 million units.

“These numbers show starts returning to levels we saw earlier this summer, where they hovered around one million units,” said NAHB chairman Kevin Kelly, a home builder and developer from Wilmington, Del. “We are hopeful this pattern of modest growth will continue as we close out the year.”

“September’s uptick reveals that last month’s dip in production was more of an anomaly than a market reversal,” said David Crowe, NAHB chief economist David Crowe. “I expect we will see a continued recovery as job creation grows and consumers gain more confidence in the housing market.”

Single-family housing starts were up 1.1% to a seasonally adjusted annual rate of 646,000 units in August, while multifamily production climbed 16.7% to 371,000 units.

Combined housing starts increased in all regions of the country. The Northeast, Midwest, South and West posted respective gains of 5.3%, 3.5%, 4.2% and 13.9%.

Issuance of building permits registered a 1.5% gain to a seasonally adjusted annual rate of 1.018 million units in September. Multifamily permits rose 4.8% to 394,000 units while single-family permits decreased 0.5% to 624,000 units.

Regionally, the Northeast, Midwest and West registered overall permit increases of 12.3%, 8.2% and 5.9, respectively. The South posted a 4.7% loss.

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Sales of single-family homes surge in January

Screen Shot 2014-02-26 at 1.42.37 PMWashington — Sales of newly built, single-family homes rose 9.6% to a seasonally adjusted annual rate of 468,000 units in January from an upwardly revised pace of 427,000 units in the previous month, according to data released by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. This is the strongest sales pace since July of 2008.

“The fact that the cold weather that hit much of the country didn’t stop home buyers from going out and purchasing a piece of the American dream is a great sign,” said Kevin Kelly, chairman of the National Association of Home Builders (NAHB) and a home builder from Wilmington, Del. “However, the very low supply of new homes on the market and the continued concern of available buildable lots still have builders cautious about getting ahead of themselves.”

“We saw a weaker sales number in December 2013 than was previously trending, and I think much of January’s increase is due to sales catching up with pent up demand,” said NAHB chief economist David Crowe. “Still, there is little doubt that historically low interest rates, affordable home prices and a healing economy are bringing buyers back into the marketplace.”

Regionally, new-home sales were generally strong with three of the four regions posting large gains. The South, the West and the Northeast showed improvement, with respective increases of 10.4%, 11.0% and 73.7%. New-home sales in the Midwest fell by 17.2%.

The inventory of new homes for sale remained steady at 184,000 units in January, which is a 4.7-month supply at the current sales pace.

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Mohawk, Daltile exclusive suppliers for NAHB show home

Screen Shot 2014-02-05 at 4.13.18 PMLas Vegas — Mohawk and its sister brand Daltile will again be the exclusive suppliers of flooring for The New American Home (TNAH), which will be a focal point of the 2014 NAHB International Builders’ Show in Las Vegas Feb. 4–6. Over 3,000 square feet of Mohawk carpet and hardwood as well as Daltile’s tile and natural stone will be used throughout TNAH.

Since 1984, The New American Home has been built to showcase NAHB supplier members’ products.  It has the distinction of being both a show house and a for-sale product, balancing architectural freedom and the bottom line.

The show home demonstrates what NAHB calls builders’ best practices, which includes concepts, materials, designs and construction techniques that can be replicated—in whole or in part—in housing built any place and in any price range.

Mohawk’s hardwoods include Pasadena Plank, a true handscraped product, and Hollandale, a very tight handscraped wood with chatter/railroad tracks that add even more character to each plank. The carpet used in the bedroom is Mohawk’s SmartStrand Silk with DuPont Sorona carpet, a Green Label Plus Certified premium soft pattern product made with partially renewable plant-based ingredients. It not only provides luxurious softness but also features built-in stain and soil protection that never washes or wears off and cleans with just water. 

The contemporary style and sophistication of Daltile’s Unity and Ever ColorBody porcelain products team up to make a statement in the Entry Runway of the TNAH.  Ever, with its true interpretation of natural stone, combines timeless visual harmony with the everlasting style and performance of a ColorBody porcelain tile.  Unity, one of the toughest tiles available, will be featured as the downstairs main floor as well as the covered terrace and porch.  Daltile’s newest glass tile Color Wave is featured in the Master Bath creating a space that pops with personality and drama.

 

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Builders still positive about multifamily market

nahbWashington — The Multifamily Production Index reached 54 in the third quarter, seven points lower than a spike in the second quarter but the seventh consecutive reading above 50.

The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100.

The index and all of its components are scaled so that any number over 50 indicates that more respondents report conditions are improving than report conditions are getting worse. Continue reading Builders still positive about multifamily market

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NAHB reports builder confidence rose six points in July

NAHBWashington—Builder confidence in the market for newly built, single-family homes rose six points to 57 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for July. This is the index’s third consecutive monthly gain and its strongest reading since January of 2006. “Today’s report is encouraging in that it shows improvement in builder confidence across every region as well as solid gains in current sales conditions, traffic of prospective buyers and sales expectations for the next six months,” noted NAHB chairman Rick Judson, a home builder from Charlotte, N.C. Continue reading NAHB reports builder confidence rose six points in July

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Senate bill an important step forward in finance reform

NAHBWashington—According to the National Association of Home Builders (NAHB), bipartisan legislation introduced recently by Sens. Bob Corker (R-Tenn.) and Mark Warner (D-Va.) is an important first step in moving the dialogue forward on overhauling the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, and the U.S. housing finance system. Continue reading Senate bill an important step forward in finance reform

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Lumber dealers and builders see shortages of materials

NAHBWashington D.C.—Home builders and lumber dealers are reporting significant shortages of key home building materials such as lumber and wall board, according to recent surveys by the National Association of Home Builders (NAHB) and the National Lumber and Building Material Dealers Association (NLBMDA).

“Supply constraints are one of the barriers to a more robust recovery,” said NAHB Chief Economist David Crowe. “The shortages and price increases reported by both home builders and lumber dealers are particularly concerning given that the current rate of construction is still far below what would be considered normal or necessary to meet underlying demand.  Continue reading Lumber dealers and builders see shortages of materials

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Housing starts rise 6.8 percent in May

NAHBWashington—Nationwide housing starts rose 6.8% to a seasonally adjusted annual rate of 914,000 units in May due primarily to increased production on the multifamily side, according to newly released data from HUD and the U.S. Census Bureau.

“The outlook for housing continues to brighten as builders respond to increased demand for new homes and rental apartments,” said National Association of Home Builders (NAHB) Chairman Rick Judson, a home builder from Charlotte, N.C. “While challenges with regard to the cost and availability of building materials, lots and labor are still keeping the pace of improvement in check, both builders and consumers are more confident about their prospects in the current marketplace.  Continue reading Housing starts rise 6.8 percent in May

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Florida Tile supports We Build American

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Lexington, Ky. — The Florida Tile brand has been added to the growing list of building supply manufacturers supporting the We Build American national initiative aimed at encouraging builders, remodelers and homebuyers to use American-made materials when building or remodeling a home.

We Build American is a new nationwide program first introduced to the National Association of Homebuilders (NAHB) in January 2013 by the 84 Lumber Company, the nation’s leading privately held building materials and services supplier to professional contractors and build-it-yourselfers. Continue reading Florida Tile supports We Build American