Bumpy road ahead

Remodeling, residential construction markets could stabilize by mid-2009
Jenni Chase
January 1, 2009

The economy will likely get worse before it gets better, said President-elect Barack Obama when introducing his economic team last November. The same could be said of the retail glass market. As the single- and multifamily housing, retail and hotel construction, and remodeling markets continue their decline in 2009, it’s inevitable that retailers will feel the pinch. However, most forecasters agree that pinch might have less bite in the second half of the year.

Single and multifamily housing
Following a 30.2 percent plunge in 2008, total housing starts will fall an additional 16.2 percent in 2009 to 784,000 units, according to the National Association of Home Builders, Washington, D.C.

Breaking down the segments, McGraw-Hill Construction forecasts single-family housing for 2009 will be down 2 percent in dollars, marking a 4 percent drop to 560,000 units. The New York firm predicts multifamily housing will retreat 6 percent in dollars and 8 percent in units in 2009.

Despite the anticipated drop in starts, David Seiders, NAHB chief economist, says the steep decline in sales of new single-family homes should be coming to an end in early 2009, setting the stage for “tepid” improvement in new residential construction later in the year, according to a report in Window & Door.

“The housing production component of GDP (residential fixed investment)  will continue to put heavy downward pressure on U.S. economic activity through mid-2009 and will provide only mild support to GDP growth in the second half of the year,” Seiders reported in his Nov. 13 “NAHB’s Eye on the Economy.”

“But that switch in direction is essential to the beginnings of economic recovery in the latter part of the year."

Jim Haughey, chief economist for Reed Construction Data, Norcross, Ga., also sees the light at the end of the tunnel. “Housing is about at the bottom,” he said during the Reed Construction Data 2009 forecast webinar. “There’s a little more damage to come, but it will be relatively small compared to what’s happened already. … Ironically, even though housing started this [economic] problem, it is going to do better than the rest of construction and the rest of the economy for the next several years, even though it won’t get back to where it was.”

Hotel and retail construction
According to construction analysts, 2009 will be slow for retailers focused on the hotel and retail construction markets. “The existing restrictive financing environment will linger into 2009, thus delaying or preventing the start of hotel projects currently in the pipeline,” said Mark Woodworth, president, PKF Hospitality Research, Atlanta, in a third-quarter 2008 release. “By 2010, we will start to see a reversal of current trends." The firm predicts a 2.2 percent increase in hotel demand in 2010, followed by a 3.1 percent increase in 2011.

The outlook for the retail construction segment is decidedly more negative. “Even recession-proof retailers are seeing negative growth,” points out Suzanne Mulvee, senior real estate economist for Property & Portfolio Research, Boston. “Retail real estate is really going to pull back.”

Several major retailers filed bankruptcy in 2008, including the familiar Linens & Things, Circuit City and Sharper Image.

The remodeling market
Citing falling home prices and rising unemployment rates, Harvard’s Joint Center for Housing Studies, Cambridge, Mass., predicts homeowner improvement spending will decline at an annual rate of 12 percent by the second quarter of 2009.

That said, Harvard analysts cautiously predict the worst could be over soon. “There are a few hopeful signs that we may be nearing a cyclical low point for home-improvement activity,” said Kermit Baker, director of the Remodeling Futures Program of the Joint Center, in a statement. “Existing home sales appear to be stabilizing and interest rates for financing home improvements are favorable. However, other market indicators continue to deteriorate.”

The remodeling market will follow the trends in new housing starts in 2009, Haughey said, describing the home-improvement segment as “a little delayed and far less volatile.”

“There has been a drop-off of remodeling that’s related to people’s incomes, which have been going down for six to nine months,” Haughey said in the webinar. “There is some opportunity to take single-family homes that have been abandoned and remodel them.”

Consumer spending
Homeowners’ hesitancy to spend money on large home-improvement projects may trickle down to smaller-ticket items like mirrors and glass tabletops. In general, consumer spending is down, according to the U.S. Census Bureau. At press time, U.S. retail and food services sales for October were $363.7 billion, a record decline of 2.8 percent from the previous month and 4.1 percent from October 2007, according to the Nov. 14 USCB report. Retail trade sales were down 3.1 percent from September 2008 and 5 percent below last year.

“The impact of the financial crisis … has clearly taken a toll on consumers’ confidence,” said Lynn Franco, director of The Conference Board Consumer Research Center, New York, in a statement at press time. Consumers expecting business conditions to worsen between November 2008 and April 2009 rose from 21 percent in September 2008 to 36.6 percent in October, according to the research center.

Jenni Chase is editorial director of Glass Magazine, e-glass weekly and GlassMagazine.com. Write her at jchase@glass.org.