A Slow Pace
By Bill Sendelback
New home construction, unquestionably an important market for many hearth products, is improving, but not at the pace many predicted and most longed for. After the National Association of Home Builders (NAHB) forecasted a 32 percent improvement in U.S. single-family starts for 2014, the actual increase was only three percent for a total of 640,000 starts.
The NAHB’s forecast for 2015 has dropped from 1,157,000 to 804,000, which is still an optimistic 26 percent increase over 2014.
“Overall, the housing market is difficult to predict,” says Roger Oxford, senior vice president of Strategic Accounts for Hearth & Home Technologies (HHT). “It has been a roller coaster ride. Last year was a growth year, but not as strong as was projected. We’re conservative, but we still expect 2015 to be another growth year, even though it started out at a lesser pace than 2014. But we don’t expect housing starts to get back to the levels of 2005 and 2006.”
Housing starts in the U.S. through February – single family and multi-family – plummeted 17 percent from January to a seasonally adjusted annual rate of 897,000 units, according to the U.S. Commerce Department, in part because of the “fierce winter weather” in the Northeast and Midwest.
Single-family housing starts fell 14.9 percent to a seasonally adjusted annual rate of 493,000 while multi-family starts dropped 20.8 percent to 304,000 units, according to NAHB.
“February’s numbers indicate that wavering consumer confidence continues to impact the housing recovery,” says David Crowe, the NAHB’s chief economist. “Buyers are waiting for a stronger, more reliable economy before making a home purchase, and builders are responding to their reluctance. Even with this month’s (February) drop in production, we expect the housing market to move forward this year in step with an improved economy.”
But while housing starts were down early this year, sales of new homes in the U.S. were up 7.8 percent, the fastest pace since February, 2008, to a seasonally adjusted annual rate of 539,000, according to the U.S. Commerce Department.
The NAHB is projecting total U.S. housing starts to be up 6.7 percent for 2015, reaching 993,000 from 930,000 in 2014. Single-family starts in the U.S. are expected to rise 26 percent to 804,000 units. “While it’s a good beginning,” says David Crowe, “this is still well below a normal level of 1.3 million to 1.4 million single-family starts.” Multi-family starts are expected to be up only two percent to 358,000 from 352,000 in 2014.
“By the end of 2016, the top 40 percent of states will be back to near normal production levels, compared to the bottom 20 percent that will still be below 75 percent,” Crowe predicts.
“We’re projecting three percent economic growth in 2015,” says Freddie Mac chief economist Frank Nothaft, “which would be only the second year in the last decade that we’ve seen growth at that level. A stronger economy supports a rise in household formations and home building.” Not as optimistic about 2015 as the NAHB, Nothaft expects single-family housing starts this year to be up 15 percent.
Sales of fireplaces are the most affected of all hearth products by the rise and fall of new home construction, and they closely track housing starts. There always have been concerns that the incidents of fireplaces in new home construction have been declining, but the numbers don’t support that concern.
In 2013, the last year reported, figures from the U.S. Census Bureau show that 51 percent of new, single-family homes had at least one fireplace, a number that has varied little since 1973 when it was only 44 percent. The highest incidence of one or more fireplaces in new single-family homes was when that rate rose to 66 percent in 1990. For most of the last decade, the rate was in the low 50 percent.
Regionally, the 2013 figures show that the Northeast is leading the pack with 60 percent of new homes sporting at least one fireplace. The West was second at 51 percent, and the Midwest and South both have at least one fireplace in 50 percent of new single-family homes.
“Some of the bigger builders dropped fireplaces during the recession,” says Glenn Thomson, senior vice president of Sales and Marketing for Innovative Hearth Products, “but now more are installing fireplaces as a standard feature. More outdoor fireplaces are becoming standard as well. On upper-end homes, the sky is the limit on fireplaces. Most builders are still looking for low costs, but the middle tier builders are looking for better models with more features to differentiate themselves in a very competitive market.”
Thomson says builders are using more direct-vent models to eliminate the need for a chase, and more are choosing true gas models rather than putting gas logs into wood-burning Builder Boxes.
“More builders have been opting for more expensive fireplaces for the last couple of years,” says Jess Baldwin, senior vice president of Sales and Customer Service for Vermont Castings Group. “Even more builders in subdivisions are looking at premium fireplaces.”
“The incident rate of fireplaces in new homes has been relatively flat,” says HHT’s Roger Oxford. “The big downturns were in areas that already had low incident rates such as Florida, Las Vegas and Southern California. While recent surveys show that nine out of 10 people want a fireplace in their new home, we, as an industry, have not done a good job of showing the builders that consumers want fireplaces.
“But there has been a real shift for builders from how to take costs out of the house to how they can differentiate themselves from their competition, such as by installing fireplaces with unique features.” The disappointing rate of housing starts appears to have a number of causes.
“New home sales were up earlier this year, but housing starts were down because of weather issues and fewer first-time homebuyers,” says Stephen Schroeter, senior vice president of Sales and Marketing for Napoleon Fireplaces. “During the recession, many builders sold land to stay afloat. Now they are starting to buy back land, but at a premium price. They are now building on this land, so their margins are going to be a little tighter. And first time homebuyers are finding mortgage loans difficult to qualify for even with today’s low interest rates. There is high demand for new homes, but the inventory is low. We expect the second and third quarters to be very strong for new home construction.”
Roger Oxford also points to the unavailability of land to develop and credit restrictions for mortgage loans. But he adds that 2014 saw a strong rise in new home prices, increases that exceeded people’s rise in incomes. He also notes the lack of qualified labor, a concern pointed out in the March issue of Builder magazine.
“When the recession hit and many contractors had to close their doors or at least cut head count,” says Oxford, “laborers went in droves back to their own countries or found work elsewhere. As builders recently kick-started operations again, labor suddenly was a lot harder to find.”
Whatever the reasons for a slower than expected recovery, at least home building is headed in the right direction. “We anticipate a modest growth in housing starts this year,” says Vermont Castings’ Jess Baldwin, “but we think the retrofit market will be stronger. People are starting to spend money on their homes.”
Hearth products manufacturers may hope so, but the NAHB is forecasting residential remodeling to be up only three percent over 2014.