Economic Forecast

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The U.S. floor coverings market surged in 2013 as the housing market finally began to experience a significant recovery. Dollar floor coverings manufacturer sales (shipments minus exports plus imports) are estimated to have increased by 7.1 percent in 2013 to $20.1 billion. Quantity sales could have climbed by 5.5 percent to 18.7 billion square feet. This is the strongest industry growth since 2004, reported Catalina Research.

The acceleration in industry growth over the past year was primarily due to the sharp increase in new and existing home sales as consumers took advantage of historic low interest rates. Builder flooring spending led the way with an estimated 19 percent increase as new residential square footage construction rose by some 20 percent. At the same time, a 9.4 percent increase in existing home sales contributed to an estimated 7 percent gain in residential replacement spending. Even non-movers began to increase flooring spending along with rising home prices, increasing personal income gains and a rising stock market.

U.S. floor coverings sales growth would have been even sharper if not for the sluggishness in commercial market sales. Commercial market floor covering spending is estimated to have increased by only 4.6 percent in 2013. The increase in commercial sales benefited from the 5.2 percent increase in private nonresidential building construction spending, which was partially offset by the 9.4 percent drop in public building construction spending.

Hard surface flooring continued to make additional inroads in 2013, reported Catalina. Hard surface flooring is estimated to account for 49.3 percent of total dollar sales and 43.4 percent of total square foot sales in 2013. This is up from 47.9 percent and 42.5 percent, respectively, in 2012. Hard surface flooring could have captured more than 50 percent of total industry dollar sales in the fourth quarter of 2013. In 2013, hard surface flooring sales are estimated to have increased by 10.2 percent in dollars and 7.5 percent in square feet. For soft surface flooring, the figures were 4.2 percent and 3.9 percent, respectively.

Hard surface sales growth received a boost from its higher dependence on the builder market. This is especially true in the strong growing ceramic tile, wood flooring and resilient flooring sectors. Homeowners are also increasingly turning to hard surface flooring when undertaking flooring replacement jobs. Consumer tastes are changing as hard surface flooring manufacturers introduced innovative products such as click-installed luxury vinyl tile, wood-plank porcelain tile and easy to install engineered wood flooring.

Consumers are increasingly turning to the value retailers — home centers and value hard surface flooring chains — as they take on an increasing number of do-it-yourself flooring replacement projects. To meet consumers’ pricing expectations, these retailers are increasing their sourcing of competitively-priced foreign-made flooring. In 2013, the dollar value of U.S. floor coverings imports increased by 13.1 percent. As a result, imports’ share of total dollar sales rose to 33.4 percent, up from 31.6 percent in 2012.  On a square foot basis, imports’ share is 37.5 percent and 35.4 percent, respectively.  Import penetration rates are above these rates in the relatively strong growing ceramic tile, resilient flooring and wood flooring product lines. The leading sources of foreign-made flooring were located in China, India, Canada, Mexico and Turkey. 

Union-Tribune San Diego, Saturday, December 7, 2013

2014 Forecast by Point Loma Nazarene University’s presented by Economist Lyn Reaser 

Some Key numbers from Point Loma Nazarene’s 2014 Economic Forecast:

Growth: U.S. gross domestic product should hit 2.8 percent after three consecutive years of 2 percent growth, driven by business investment and stronger consumer spending.

Jobs: The U.S. will add 2.4 million payroll jobs next year, pushing the unemployment rate down to 6.8 percent by the end of next December. In San Diego County, Reaser said she expects an additional 28,000 jobs and 6.5 percent unemployment. By late summer, the county should have recovered the 103,000 jobs lost during the Great Recession.

Interest rates: Should the Fed taper its stimulus on long-term rates, Reaser said the yield on 10-year Treasury notes should rise to 3.5 percent. Also, the average 30-year-fixed mortgage rate should hit 5 percent, up from this week’s average of 4.46 percent.

The U.S. floor coverings market finished up again in 2012 in dollars and square feet, according to Catalina’s Quarterly Update. Manufacturer dollar sales (shipments minus exports plus imports) are estimated to have increased by 4.3 percent to $18.7 billion, while volume sales could have risen by 2.1 percent to 18 billion square feet, according the report. Private commercial market demand continued to play a key role in rising floor coverings sales in 2012, however, overall nonresidential sales gains were held down by a decline in government building construction. Total spending on nonresidential building construction increased by only 7.5 percent over the first three quarters of 2012 compared to a 15.7 percent increase in residential construction spending.

However, residential and nonresidential market sales are estimated to have slowed in the fourth quarter of 2012 as uncertainty over the adverse effects of the “fiscal cliff” — the Federal government’s legislative requirement to raise taxes and cut spending — which will create a fiscal drag on the economy. The uncertainty is causing consumers, businesses and governments to reduce their flooring purchasing plans. As a result, Catalina estimates that U.S. manufacturer flooring sales are to have increased by only 3.2 percent in dollars and 1.6 percent in square feet in the fourth quarter. This is down from 6.6 percent and 3.9 percent, respectively, in the third quarter. Sales growth may have also slowed in the fourth quarter since manufacturers may have overshot final market demand in the third quarter, causing inventories to accumulate throughout the industry’s supply chain.

Despite the slowdown, hard surface flooring continued to make inroads in the U.S. floor coverings market. In the fourth quarter of 2012, hard surface flooring is estimated to have accounted for 48.5 percent of total dollar sales and 44.5 percent of total square foot sales — this is up from 47.0 percent and 43.0 percent, respectively, in the fourth quarter of 2011, as noted by Catalina. Manufacturer hard surface flooring sales are estimated to have increased by 6.6 percent in dollars and 5.3 percent in square feet over this period.

On the other hand, carpet and rug sales were flat in dollars and could have declined by 1.2 percent in square feet. The weakness in soft surface flooring sales is centered in wall-to-wall carpet lines. Meanwhile, area rug sales continue to grow as consumers purchase area rugs to accent their new installations of ceramic tile, resilient flooring and wood flooring — the sharpest growing sectors of the U.S. floor coverings market.

The trend towards hard surface is expected to continue into 2013 as it begins to approach the 50 percent level in dollar terms. Overall, manufacturer sales growth is expected to remain sluggish in the first quarter of 2013 as households and businesses hold back on flooring spending due to the uncertainty over Federal government taxing and spending legislation. For the rest of the year, Catalina estimates that square foot sales gains will be in the 2 percent to 2.5 percent range, led by gains in the builder market. This indicates that U.S. floor coverings industry sales will remain below long-term trends for another year.

BREAKING FLOORING NEWS / TALKFLOOR NEWS

Number of improving housing markets surges to 201 in December

December 6, 2012

The number of housing markets considered “improving” according to parameters established by the National Association of Home Builders/First American Improving Markets Index (IMI) surged by 76 to a total of 201 metros in December, according to IMI data released recently. The index also shows that the number of states represented on the list by at least one metro increased from 38 in November to 44 (plus the District of Columbia) in December.

The index identifies metropolitan areas that have shown improvement from their respective troughs in housing permits, employment and house prices for at least six consecutive months. A total of 84 new metros were added to the list and eight were dropped from it this month. Newly added metros include such geographically diverse locations as Atlanta, Ga.; Bloomington, Ill.; Ann Arbor, Mich.; Seattle, Wash.; and Green Bay, Wis.

“The big gain in improving markets this December indicates that key measures of housing and economic strength have now been holding steady or improving in metros across the country for six months or more, which is an important signal of stability amidst the slowly emerging recovery,” said NAHB Chairman Barry Rutenberg, a home builder from Gainesville, Fla. “The main thing that’s limiting the progress we’re seeing right now is the difficulty that potential buyers continue to experience with regard to overly tight mortgage qualifying standards.”

“This fourth consecutive month of expansion in the IMI, coupled with the fact that well over half of all metro areas are now represented on the list, is in keeping with the upward trends that we’ve been seeing all year in terms of housing starts and sales, builder confidence and other measures,” noted NAHB Chief Economist David Crowe. “In general, we expect the overall housing recovery to continue expanding in 2013. However, that is absent a major policy change of the kind that some policymakers have been discussing with regard to the mortgage interest deduction.”

“The dramatic expansion of improving markets at the end of this year should help encourage consumers who may have been on the fence about a home purchase that a housing recovery is now firmly underway,” added Kurt Pfotenhauer, vice chairman of First American Title Insurance Company.

The IMI is designed to track housing markets throughout the country that are showing signs of improving economic health. The index measures three sets of independent monthly data to get a mark on the top improving Metropolitan Statistical Areas. The three indicators that are analyzed are employment growth from the Bureau of Labor Statistics, housing price appreciation from Freddie Mac and single-family housing permit growth from the U.S. Census Bureau. NAHB uses the latest available data from these sources to generate a list of improving markets. A metropolitan area must see improvement in all three measures for at least six consecutive months following those measures’ respective troughs before being included on the improving markets list.

A complete list of all 201 metropolitan areas currently on the IMI, and separate breakouts of metros newly added to or dropped from the list in December, is available at www.nahb.org./imi.

Flooring News

Signs of a turnaround in US housing market  

Floorcovering Weekly article June 18/25, 2012 by Kermit Baker

After several false starts, there is reason to believe that 2012 will mark the beginning of a sustained housing market recovery. Employment growth remains key, providing the stimulus for stronger household growth and bringing relief to some distressed homeowners. Many rental markets have already turned the corner, giving a lift to multifamily construction but also eroding aff ordability for many low-income households. While gaining ground, the homeowner market still faces heavy headwinds.

These are key findings from the Harvard University Joint Center for Housing Studies’recently released The State of the Nation’s Housing 2012. In spite of the optimism that a housing recovery is finally underway, a number of conditions may keep the recovery in the owner-occupied market relatively subdued. The backlog of roughly two million loans in foreclosure means that distressed sales will remain elevated, keeping prices under pressure. Another 11.1 million homeowners owe more on their mortgages than their homes are worth. The number of vacant homes is still well above normal, limiting demand for new construction in many markets.

The bright spot continues to be the rental market, where demand has spiked. Indeed, the number of renters surged by 5.1 million in the 2000s, the largest decade-long increase in the postwar era. In part, this growth reflects disproportionate shares of young, minority and lower-income households, who are traditionally more likely to rent. But the foreclosure crisis and the aging of the population have also spurred increases in renting among the middle-aged, as well as households that are white, married and have moderate incomes.

Declines in the national homeownership rate accelerated in 2011 as increasing numbers of households opted — or were forced by foreclosure — to rent. The national homeownership rate dipped to 66.1 percent, down 0.7 percent from a year earlier and 2.9 percent from the 2004 peak. Despite the drop in rates for all age groups under 65, the overall rate remains well above the 64 percent prevailing in the 1980s and fi rst half of the 1990s. Indeed, the national rate remains relatively strong both because the ranks of households with heads aged 65 and over are growing and because homeownership rates among this age group remain near record highs.

Given that the number of new homes added in 2002–2011 was lower than in any other 10-year period since the early 1970s, it is diffi cult to argue that overbuilding is dragging down the housing market. Instead, the excess housing supply largely reflects the sharp slowdown in household growth in 2007–2011 to just 568,000 per year — less than half the pace in the fi rst half of the 2000s.

The most important drivers of household growth are the size and age structure of the adult population. Assuming the economic recovery is sustained in the next few years, the growth and aging of the current population alone — including the entrance of the echo boomers into adulthood — should support the addition of about one million new households per year over the next decade.

Over the next 20 years, the echo boomers have the potential to spur new home demand to an even greater extent than their parents did beginning in the 1970s. The good news for the housing industry is that this new generation already outnumbers that of the baby boomers at the same ages. With moderate gains in multifamily construction, improving sales of existing homes, and modest increases in single-family starts, housing should make a stronger contribution to economic growth in 2012 than it has in years. But while the rental market rebound is on track, the owner-occupied market still faces a number of pressures.

In particular, sales of distressed properties are holding down home prices, and millions of owners are unable to sell because they are underwater on their mortgages. These conditions are holding back a more robust recovery in existing home sales as well as in improvement spending, which usually increases right after a home purchase. The greatest potential for recovery in for-sale markets lies in its historic affordability for well-positioned homebuyers. The dive in home prices and record-low mortgage rates have made owning more attractive than in years. But the availability of mortgage financing for young buyers with limited cash and less than stellar credit is far from certain.

The State of the Nation’s Housing 2012 is available for no charge on the Joint Center’s website: www.jchs.harvard.edu. Kermit Baker is the senior research fellow for the Joint Center of Housing Studies at Harvard University.

State of the Industry could be better…

Floor Covering Weekly article December 5/12, 2011 by Kimberly Gavin –

As the year began, most executives were optimistic that 2011 was going to be at least a slight improvement over 2010. Unfortunately, it looks to be more of the same: flagging home starts and sales, a sluggish residential replacement market and a surprisingly buoyant commercial market.

The residential problem is easy to identify: The housing market. The lack of a robust housing market keeps flooring sales focused on the replacement market. But even those sales are tough with a depressed economy, high unemployment and real estate values that aren’t what they were five years ago.

The flooring industry appears to be on par to finish 2011 down in square footage but ahead slightly in dollar value, according to Catalina Research. The latest data suggests sales will be down in volume in the 2 percent to 3 percent range, but up in dollars in the 1 percent to 2 percent range.

Ceramic tile and vinyl will likely prove to be winners over the course of the year as demand is up for both. Consumers perceive ceramic tile as a high-value product, which positions it well for the upper-end, a market that hasn’t been hit as hard and that’s come back faster. Its success on the commercial side is less robust, but many companies are pushing.

Vinyl has succeeded because of its value proposition, which it offers in conjunction with product innovation (fiberglass backing and mechanical locking systems) and styling. Vinyl appears to be taking the most share away from laminate, but probably from carpet as well on the residential side.

The laminate market continues to be plagued by prices that spiral downward. In 2010, prices declined over 2 percent while volume increased. Manufacturers expect the price decline to continue as commoditization continues. Industry experts estimate that more than 60 percent of its products are sold through DIY channels.

Carpet is down in units again by nearly 5 percent, according to industry reports. Fortunately, price increases have kept values flat year over year. Carpet makers face continued share loss to ceramic tile, hardwood and vinyl on the residential side of the market. On the contract side, carpet is holding its own as carpet tile has become a preferred material.

Hardwood, which has had its own drama in 2011 with the ITC investigation, saw sales increase in the first half of the year more than 2 percent. Catalina Research, which provided that statistic, believes wood will show a slight share gain in 2011 versus 2010. Consumers also perceive hardwood as a high-quality product.

A critical issue for all categories is that rising raw materials costs continue in spite of almost-global economic slowdown. All categories have faced rising raw materials increases through the course of 2011 and that’s not likely to change in 2012. As recently as September, two major carpet mills attempted a price increase, only to have it not supported by a third major player. The feeling is that an increase will come with the new year.

Even though sales were soft in 2011, the bright spot is that demand is piling up. Sooner or later, new homes will be built and floors will be replaced. The only question is when the recovery will really begin. FCW

Catalina Research November 22, 2011 – Housing is Rebounding…

According to Catalina Research the ceramic tile sector experienced a slight increase in demand in 2010, and growth is expected to continue to some slight degree in 2011.  There are some signs of improvement in the 3rd quarter 2011.   The housing market showed strong gains and specialty floor coverings store sales turned upwards.  Housing permits increased by 6.5% and starts rose by 5.5% in the third quarter of 2011.  In October these gains further accerlerated   Speciality floor covering store sales increased by 1.2% in the third quarter after declining 7.9% in the first half of the year.  The improvement is likely due to consumers considering housing prices low enough after declining by 26% over the last five years.  They are also reacting to historic low mortgage rates.  The share of households delinquent on their mortgage payments has fallen to the lowest level since the end of 2008.  So the question is how sustainable are these trends?  We could see continued gains in the housing market, since the lack of Congressional action on the budget results in neither a cut in spending or an increase in taxes.   So we may see stronger floor covering sales for 2012.  However, all bets are off for 2013 if the automatic cut in spending and increase in taxes (a total of $4.9 trillion over ten years) goes into effect.

FCW prime – January 4, 2011

Floor coverings post disappointing year-end sales

The U.S. floor covering market ended the 2010 year with a minimal and disappointing increase in square foot and dollar sales (shipments minus exports plus imports) — about 1.8 percent to $17.1 billion and 17.9 billion square feet, according to Catalina Research’s Quarterly Update.

Overall expectations were not met. Most of the increase was due to restocking distribution channel inventories which had been depleted by the double-digit drop in manufacturer sales in 2009. And, according to Catalina’s quarterly update, manufacturers and importers began to ramp up shipments in the spring of 2010 in anticipation of rising floor coverings demand, due to the recovery in the U.S. housing market between the third quarter of 2009 and the second quarter of 2010 as consumers responded to the homebuyer tax credit.

However, floor covering sales growth declined during the second half of 2010 as the housing market took a double dip after the expiration of the home buyers’ tax credit. The report estimates that floor covering purchases declined 1.5 percent in 2010. Catalina also reported that there was a 1.6 percent drop in specialty retail floor coverings store sales over the first three quarters of 2010.

2010 also experienced a dip in consumer confidence in the summer and early fall as consumer’s grew concerned about the European debt crisis and the unemployment rates remaining at about 10 percent.

The industry increased its reliance on the remodeling and replacement business which had an increase in preference for value-priced hard surface flooring products. According to Catalina Research, imported products increasingly filled this demand. Wood flooring imports, for example, increased by some 35 percent over the first three quarters of 2010 and resilient flooring imports increased by about 21 percent. In laminate, square foot imports rose close to 19 percent. In total, square foot imports of ceramic tile, wood flooring, resilient flooring and laminate flooring rose by 11.5 percent over the first three quarters of 2010, while dollar imports rose by 15.8 percent.

FCW prime – October 5, 2010

Economic expectations for 2010 are lowered
Industry predicts minimal increase over last year

Optimism for an economic recovery was cooled come mid-July as consumer spending slowed and a shift to value-priced goods took place.  And after months of hopeful growth, industry executives predict that any real recovery is years away.

• “It’s no secret that the optimism going into 2010 has been somewhat shaded by the reality of the last eight months,” said Steve Silverman, president and COO of Abbey Carpet & Floor. “Most of the industry felt that we would see possibly a four to eight percent pickup on top line by year end going into 2010. The reality today says that through August, we see ourselves at plus or minus two percent top line.”
  

• “In July and August of 2009, we started to see the market moderately rebound, and in July and August of 2010 we’ve seen the market contract,” said Keith Campbell, chairman of the board for Mannington Mills.
  

• Added Ralph Boe, president and CEO of Beaulieu America, “[Consumers] saw the housing market getting better and incentives in the housing market and it gave them a feeling of things getting better. Then the incentive dropped out and unemployment is still up. Those two combined caused demand to slow.”
  

• According to The Beige Book Summary compiled by the Federal Reserve Bank of San Francisco, things have indeed slowed down. Overall economic activity, it reported, continued to grow but at a decelerated pace for the period of mid-July through the end of August.  Real estate and construction activity continues to decline, much of which is being attributed to the expiration of the tax credit in June.
  

• “It will take some time for the market to rebound naturally — possibly two years before we return to normal housing activity,” said Mannington’s Campbell. “It’s also interesting to note that in past recessions, housing led the recovery, which is certainly not the case now.”
  

• “Residentially, we could not argue with the trends,” said Randy Merritt, president of Shaw Industries. “There seems to have been a definite slowdown in retail and builder work since June. Some of this may have been related to the expiration of the home buyer tax credit and some due to the price increase the industry passed along in June that may have moved some July business in to June.  Feedback from customers has been that July, August and early September have been slow. “
  

• Added Silverman, “New housing starts are down and not surprisingly so when you have such a large inventory of existing homes. The banks have the money and the lending practices are more stringent and more difficult to obtain. So we went from one extreme in 2004, 2005 and 2006 of easy credit and housing starts hitting record highs to just the reverse.”
  

• While companies adjust manufacturing and inventory levels, they have identified potential areas of growth opportunity. Noted Beaulieu’s Boe, “We are starting to see some recovery in the commercial market. If you look at the commercial sector, that has surprised us. Typically commercial goes down after residential and recovers after residential. It’s recovering sooner. We’ve seen significant growth in the carpet tile business in commercial. More recently, we’ve seen activity in the hospitality sector. Those are some encouraging pieces of information.”
  

• Agreed Shaw’s Merritt, “The commercial market has held up better, fueled in part by strong carpet tile business.”
  

Catalina Research Floor Coverings Industry Quarterly Update – September 2010

Outlook…

The decline in U.S. housing demand in the third quarter and an estimated drop in the
fourth quarter due to the recent decrease in consumer sentiment will keep U.S. floor coverings
manufacturer square foot sales (shipments minus exports plus imports) sluggish for the
remainder of the year. As a result, second half 2010 sales are estimated to increase only 1.6%
to 1.7%, down from the 3.5% to 4.0% gain forecast in the June Quarterly Update.

Sluggish industry growth is forecast to continue into 2011 since consumers remain
cautious in the face of weak job numbers and reduced household wealth. Consumers will hold
off on replacing flooring at a significant rate until they feel confident in the new healthcare
legislation, their retirement programs, and the direction of taxation. Until this happens they will
continue to deleverage. To subscribe to this quarterly report click here.

FCW prime – July 19, 2010

Year three of downturn deals biggest Blow Yet…

The U.S. floor covering industry, staggering through the third full year of the worst downturn it has ever seen, lost an additional almost 20 percent of its value between 2008 and 2009 when total industry sales — U.S. shipments minus exports plus imports — fell from 2008’s now revised figure of $21.28 billion to $17.12 billion. The industry hasn’t seen that level of sales since 1998. In terms of volume, the industry is down almost 17 percent, falling from a total of 21.17 billion square feet sold in 2008 to a total of 17.66 billion sold in 2009.

The downturn started with the bursting of the new home construction bubble, followed by the subsequent subprime mortgage mess, the deterioration of existing home sales, recession, job losses, financial and banking meltdowns, a pervasive credit crisis — all of which led the economy to a standstill, deeply impacting the residential interiors industry. Add to that the slowdown on the commercial side in late 2008 and the economy gradually affected almost every segment.

As observed by FCW in last year’s report (July 20/27, 2009) the result of the recession has been to favor value-oriented products like carpet and vinyl, which had been seeing a steady loss of market share in previous years.

Virtually every sector saw declines in 2009 vs. 2008. Ceramic floor and wall tile suffered the biggest drop in value and saw a 25.4-percent decline in sales, and an 18.2-percent drop in volume. The closely aligned stone category saw the second-largest drop, down 23.4 percent in sales and 23 percent in volume. Carpet and area rugs also suffered declines of 21.1 percent in sales and almost 18 percent in volume.
Laminate flooring saw a nearly 13.9-percent decline in sales in 2009, along with a corresponding drop in volume of 12.2 percent. Hardwood sales declined almost 14 percent year over year. Vinyl sheet, floor and other resilient declined by more than 11 percent in sales. The rubber category saw the smallest decline in the industry, dropping just 5.0 percent in sales, year over year.

Fortunately, according to Catalina Research, sales are beginning to rebound in 2010 and could experience the first annual increase since 2006. The uptick is being driven by the residential remodeling and replacement markets. Home prices have dropped and a first-time homebuyer tax credit boosted sales.

Catalina Research believes that the industry will see an increase in sales of 4 percent during 2010 to return to $17.8 billion. Square-foot sales could rise nearly 3 percent to approximately 18 billion. Following drops of 11.6 percent (2006–2007), 10.9 percent (2007–2008) and 16.6 percent (2008–2009) that would be good news indeed. 

Economists Bullish on Housing Starts Outlook Thru 2011

Starts near 700K this year, around 1 million in ’11

Source: PROSALES Information Service
Publication date: May 19, 2010

By Craig Webb

The number of housing starts nationwide will rise modestly this year to near 700,000, then accelerate to roughly 1 million in 2011 and perhaps climb to as many as 1.7 million starts in 2012, a trio of housing economists predicted Tuesday afternoon. Those forecasts followed news that housing starts climbed 5.8% in April from the month before to reach a seasonally adjusted annual rate of 672,000 homes.

The presentations by Chris Varvares, president of Macroeconomic Advisers, Mark Zandi, chief economist at Moody’s economy.com, and David Crowe, chief economist and senior vice president of the the National Association of Home Builders (NAHB), all cited economic indicators that favor the housing market: a rise in personal consumption, increased residential investment, and a need to increase inventories of homes to reflect recent reduced production and continued population growth.

“We do see housing really ramping up in 2011,” Varvares said during the NAHB-sponsored webinar.

While similar, the trio’s forecasts varied slightly. Crowe, the most conservative, predicted the total number of single- and multifamily starts would rise from 554,000 in 2009 to 645,000 this year and 991,000 in 2011. Zandi foresaw 700,000 single- and multifamily starts this year, 1 million in 2011 and–assuming there aren’t any big economic surprises–close to 1.7 million starts in 2012. Many economists view that 1.7 million rate as the number of starts America can sustain annually over the long run given the country’s population and financial growth.

Varvares, who focused only on the single-family side of housing, predicted roughly 700,000 starts this year and close to 1.2 million by the end of 2011.

Crowe cautioned that the recovery won’t be the same in all states because the housing slump varied so dramatically across the nation. By the end of 2011, he said, many Southern and Plains states–where the recession’s effects were relatively slight–will rebound to at least 89% of normal production. In contrast, the Great Lakes states plus California, Florida, Nevada and Arizona will still be below 70% of normal production at the end of next year.

Most of those slowest-to-rebound states also have the highest foreclosure rates, which Zandi called a “key threat” to his forecast. Roughly 15 million homeowners nationwide have negative equity in their homes, he said, and 9 million of those are “under water” by more than 20%. He said we’re in an era now in which people are choosing to default on their mortgages rather than keep paying them because they see no value in putting money into a home that’s worth so much less than its original sales price. Varvares also noted the foreclosure threat, but he concluded: “It’s certainly possible to work off the inventory with the kind of aggressive market that we have.”

Tuesday’s other report on current conditions–the Commerce Department’s residential construction report–actually was more favorable to single-family housing than the topline numbers indicated. That’s because starts of multfamily projects actually fell 23.6% in April from the month before while single-family starts were up 10.2% month-over-month. April’s new numbers mean single-family starts are up 53.6% from where they were in April 2009, while multfamily starts are down 15%.

AGC of America Construction Forecast

May 10-14, 2010
Vol. 10, No. 18

“A four-year slump in construction may be nearing an end, with the biggest U.S. building-material makers reporting higher monthly sales that have yet to spread industrywide,” Bloomberg.com reported on Monday. “Cemex SAB, the largest U.S. cement producer, and Vulcan Materials Co., the top gravel supplier, just reported monthly volume increases for March and April, their first since 2006. The results exceeded estimates and may lead the Portland Cement Association, a trade organization that represents U.S. and Canadian companies, to increase its growth forecast this year, said Ed Sullivan, its chief economist. ‘This upturn, even though it’s still based on limited data, is to be believed,’ Sullivan said in an interview. ‘From what I’m hearing, it’s a significant uptick in April and I think we’re going to see a very good May as well.’ Increases in housing starts and rail shipments of crushed rock, sand and gravel indicate a rebound in construction….Demand for gypsum wallboard and home insulation, which can trail housing starts by six months, continues to decline. Chicago-based USG Corp., the largest U.S. producer of wallboard, said on April 20 that first-quarter shipments fell 12% from the year earlier. Owens Corning Inc., the nation’s biggest maker of insulation, expects to keep losing money in that business this year because of weak demand, [CEO] Mike Thaman told analysts on April 28.”

The homebuilding market is mixed. Builders interviewed for a report issued today by EconoPlay (www.econoplay.com) cited big gains for one builder in Houston, with Phoenix and Minneapolis “starting to come back” but not Atlanta. Another saw improvement in Des Moines but not Cedar Rapids, Iowa. A Minnesota builder said, “‘Our sales were down 12% in April 2010 vs. 2009’ and May traffic and sales remain poor….‘We had good sales in April,’ said Norman Dreyfuss, executive vice president of the IDI Group of Companies in Maryland and Virginia, a multifamily builder….George Pattee, CEO of Parksite Group, a supplier of building materials [said] his strongest sales are in New England, a mature market not tied to new construction. Florida and North Carolina, which are tied to new construction, ‘are still horrible,’ he said….‘In March, I had my biggest sales increase in three years. In April my sales moderated. And May has been stinky,’ said Barry Russin, president of Russin Lumber in Montgomery, New York, a supplier to lumber yards throughout the Northeast…. Lumber prices picked up strongly all year, ‘but they finally broke to the downside two weeks ago’—a sign that demand for construction materials is abating, Russin said.”

Construction spending to keep falling

by Denver and SouthFlorida Business Journal

U.S. construction spending is expected to fall 12 percent this year and 4 percent next year, according to IHS Global Insight Third Quarter Construction Briefing.

That’s the bad news. The good news is that real total construction spending is expected to rebound with double-digit growth on an annual basis in 2011 and 2012.“The mixed outlook for the construction market mirrors the mixed outlook for the broad economy,” IHS Global Insight noted in its report. “While the outlook for nonresidential construction is weak for this year and next, residential construction – driven by a single-family market verging on recovery – is expected to expand in the second half of 2009, climbing 2.1 percent, quarter-on-quarter, in the third quarter and 4.8 percent in the fourth.”Commercial construction is expected to fall 27.9 percent this year, while occupancy rates in commercial properties – such as office buildings, hotels and retail stores – are falling and rents continue to drop.“The combination of shrinking revenue and tight credit markets is acting as a roadblock to businesses seeking additional financing,” IHS noted.

Among other findings:

• On an annual basis, total manufacturing construction spending is forecast to fall 41.5 percent in 2010 and an additional 12 percent in 2011 before recovering in 2012.
• Total spending on hospitals and other health care buildings continues to increase steadily, driven particularly by rapid expansion in public health care construction.
• Excluding power segment construction, which will decline, infrastructure construction is forecast to rise 6.4 percent in 2010 and 4.5 percent in 2011.
• Spending on transportation infrastructure will see moderate increases in 2010. The stimulus package includes $13 billion for rail projects. However, transit systems in several major cities are facing deficits equal to at least 12 percent of their operating budgets.

FCW prime

Vol. 4 No. 02
Up-to-the-minute News and Information for flooring executives
January 26, 2009

Steep decline forecasted for nonresidential construction in 2009
By Liz Switzer

As the U.S. economy continues to struggle, nonresidential construction spending is expected to decrease by 11 percent in 2009 with commercial projects — including office buildings, hotel and retail establishments — experiencing the most significant drop in activity. However, prices have declined for key construction commodities, according to the American Institute of Architects (AIA) semi-annual Consensus Construction Forecast, a survey of the nation’s leading construction forecasters.

In the commercial/industrial sector, hotel activity is expected to decline by as much as 20.2 percent followed by an almost 20-percent decline in retail construction; 17.5 percent in office building; and more than 11 percent in industrial facilities. Projections for 2010 are also negative for all four areas with a further decline of 12.2 percent in hotel construction followed by a 6-percent drop in retail; 11.1 percent in office buildings; and 8.4 percent in industrial facilities.
“As profits for businesses have fallen and the ability to get credit to finance projects has become far more difficult, construction plans have been put on hold or canceled outright in recent months,” said AIA chief economist Kermit Baker.”This is not expected to turn around anytime soon and it’s likely to get worse before it gets better.”

But there is a positive note as the downturn in nonresidential activity has helped stabilize construction costs, Baker added. “Prices for steel, gypsum products, lumber and cement have all come down recently which makes taking on projects more attractive to developers,” he said.

To revitalize the building sector, which accounts for about one in every $10 of the United States GDP, the AIA has developed the Rebuild and Renew Plan, which details its recommendations for the allocation of funds in President Obama’s economic recovery plan. If implemented correctly, the nearly $100-billion plan would create 1.6 million jobs throughout the design and construction industry, according to the AIA.

Associated Press
Construction spending falls less than expected
By MARTIN CRUTSINGER , 01.05.09, 10:46 AM EST 

Construction spending fell less than expected in November as record activity on nonresidential projects helped offset another steep decline in housing. The outlook, however, is for significant weakness as the worst recession in at least a quarter-century takes its toll on construction.

The Commerce Department reported Monday that construction spending dropped by 0.6 percent in November, less than half of the 1.3 percent decline economists expected. A 4.2 percent fall in housing construction was partially offset by a surprisingly strong 0.7 percent rise in nonresidential activity.

But economists expect housing, which has been in a slump for two years, will continue to struggle in the months ahead. They also are concerned that nonresidential projects will falter as developers deal with a severe financial crisis making it hard to get financing amid a yearlong recession that has curbed the appetite for new shopping centers and office buildings.

The 0.6 percent decline in total construction followed a 0.4 percent drop in October. The October performance was revised upward from an original estimate that construction had dropped 1.2 percent that month.

The back-to-back declines left construction at a seasonally adjusted annual rate of $1.078 trillion, down 3.3 percent from a year ago.

The prolonged weakness in housing, where the current economic troubles began, is showing no signs of bottoming out. Sales of both new and existing homes along with home prices are continuing to plunge, while rising foreclosures are dumping more unsold homes on the already glutted market.

For November, the 4.2 percent drop in home construction left residential activity at a seasonally adjusted annual rate of $328.3 billion, down 23.4 percent from a year ago.

The nation’s homebuilders have been reporting large financial losses as demand keeps falling even as they slash production. Hovnanian Enterprises Inc., based in Red Bank, N.J., reported last month that its fiscal fourth-quarter loss totaled $450.5 million as revenue fell by 48 percent.

The 0.7 percent rise in nonresidential building left the sector at an all-time high of $428.2 billion at an annual rate, following a 0.4 percent drop in October. But economists are forecasting more declines as the prolonged recession cuts demand for new shopping centers and office buildings, and the worst financial crisis since the 1930s makes it harder for builders to obtain financing.

Nearly 40 percent of real estate investors need to refinance part of their portfolios this year, according to more than 1,100 investors surveyed in October by Marcus & Millichap Real Estate Investment Services and National Real Estate Investor magazine. The investors also expect prices to decline 15 percent on average this year.

General Growth Properties Inc., the country’s second-largest mall owner, last month hired a commercial real estate firm to put prominent retail centers in Boston, New York and Baltimore up for sale in a desperate attempt to shore up its finances. The Chicago-based company is saddled with huge amounts of debt it took on during the market’s boom years when it aggressively bought assets.

Meanwhile, government spending kept rising in November, climbing 1.4 percent to a record annual rate of $321.95 billion. State and local construction rose by 1 percent to a record annual rate of $295.2 billion, while federal construction was up 6 percent to an all-time high of $26.8 billion at an annual rate.

President-elect Barack Obama is pushing for a massive stimulus plan to keep the economy from falling into an even deeper recession. Part of that plan would involve increased spending for “shovel ready” infrastructure projects including roads and bridges.

Copyright 2008 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed –

National Home Builders Association (NHBA) – October 2, 2008

• Economic Fundamentals Weaken Further

Real gross domestic product (GDP) growth for the second quarter has been revised downward from 3.3% to 2.8% — still a respectable pace. Of more importance, key sectors of the economy weakened considerably during the third quarter and the economy is entering the final quarter of the year in troublesome condition, despite recent declines in oil prices.
The housing sector continues to pull the U.S. economy downward. Housing-related weakness is progressively spreading to other sectors, and credit-market constraints are weighing on virtually all components of spending except for outlays by the federal government.

Consumer spending, accounting for about 70% of overall GDP, has been flagging badly as the special stimulus from the personal tax rebates has run out of steam, as job losses have accumulated and as wealth losses in housing and the stock market have weighed on consumer confidence/sentiment and discretionary spending.

Indeed, real disposable income has been declining in recent months and it’s now pretty clear that real personal consumption expenditures contracted in the third quarter — the first quarterly setback since 1991. Plummeting auto sales are an important part of that story.

The confidence of nonfarm nonresidential businesses also has been shaken badly and recent indictors point to a manufacturing sector in recession and systematic declines in commercial construction as well.

It’s now likely that nonresidential fixed investment, in total, will slip into the red zone in the third quarter of the year and that overall GDP growth will be around zero for that quarter — a percentage point below our most recent baseline forecast.

• The Probability of Recession Has Risen Considerably

NAHB’s most-recent short-term forecasts for real GDP and payroll employment are being marked down at this time, despite our new monetary policy assumptions, and the forecasts will be fully revised when the dimensions of the financial rescue plan are clear.

On an annual basis, total manufacturing construction spending is forecast to fall 41.5 percent in 2010 and an additional 12 percent in 2011 before recovering in 2012.  Total spending on hospitals and other health care buildings continues to increase steadily, driven particularly by rapid expansion in public health care construction.  Excluding power segment construction, which will decline, infrastructure construction is forecast to rise 6.4 percent in 2010 and 4.5 percent in 2011.  Spending on transportation infrastructure will see moderate increases in 2010. The stimulus package includes $13 billion for rail projects. However, transit systems in several major cities are facing deficits equal to at least 12 percent of their operating budgets. 

We’re assuming (provisionally) that something close to the Senate-approved plan will be enacted very soon and that we will not have to deal with financial market Armageddon and associated economic depression.

But recent evidence of economic weakness, substantial wealth losses in equities and housing, and stubbornly tight credit market conditions are likely to take enough additional toll on the economy to justify an official recession “call” by the experts at the National Bureau of Economic Research.

We’re now looking for a medium-sized U.S. recession in 2008 and part of 2009, with a peak unemployment rate around 7% — compared with 6.3% in our most-recent baseline forecast. We still expect the global economy to maintain positive growth throughout this period, and that’s an important call.

The San Diego Union – Tribune – Housing slump seen continuing far into ’08 – New-home sales hit a 12-year low – December 29, 2007

Home Builders are sharply curtailing construction and cutting prices across the country to fight the worst housing slump since the early 1990s.  Analysts say the market may not bottom out until well into 2008 or even later.  Sales of new homes dropped to a 12-year low in November at 647,000, which is the slowest past since April 1995 when sales ran at a pace of 621,000. 

New home purchases are down 34.4 percent from a year earlier leaving a large inventory of unsold homes.  Potential buyers seem to be waiting for prices to drop further.  Tighter credit and the fear of further declines in value limit buyers.  Rising foreclosures and a wave of cancellations further hurt the nation’s biggest home builders stock prices.  Sales are dropping at such a pace that the pullback in newhome building remains insufficient to make any headway in clearing out the sizable inventories of new home for sale.

Analysts say home sales could bottom out as early as middle of 2008 but that recovery will be gradual.    It will take a couple of years of reduced home construction in order to clear up the excess inventory.  Annual sales in the summer of 2005 was at an all-time high of 1.39 million and have since dropped to an annual rate of 647,000 – a loss of 53.4 percent.  Excess inventory going down, prices going down and income continuing to grow will help speed recovery. 

NAW SmartBrief Issue – Modern Distribution Management  – MAPI Report: Risk of Recession is Rising November 15, 2007

The risk of recession is rising, thanks to the recent housing collapse and credit crunch, rising oil prices, slowing employment growth, and lack of consumer confidence, according to a new report.

The Manufacturers Alliance/MAPI Quarterly Economic Forecast forecasts that inflation-adjusted GDP growth will slow to 2.1 percent in 2007 and to 1.3 percent in 2008. “The U.S. economy in the past has experienced a recession from fewer shocks than we are now experiencing,” said Daniel J. Meckstroth, Manufacturers Alliance/MAPI chief economist.

“By itself the housing collapse would probably not cause a recession, but when combined with a credit crunch, falling housing prices, record oil prices, falling corporate profits, low consumer confidence, and decelerating employment growth, the risk of recession has climbed to at least 50 percent.”

Manufacturing production growth will show a decline from 4.7 percent growth in 2006 to an estimated 1.9 percent in 2007, and is forecast to remain flat in 2008. These figures are down from the previously expected 2 percent and 2.9 percent growth, respectively, in the August forecast.

Production in non-high-tech industries is forecast to grow only 0.9 percent this year and to decline by 1.2 percent in 2008. There is, however, some positive news, as inflation-adjusted spending for computers and electronic products is expected to rise 11.5 percent in 2007 and 10 percent in 2008.

Spending on non-residential structures is forecast to rise a robust 12.1 percent in 2007 but by only 0.8 percent in 2008.  The forecast calls for industrial equipment expenditures to increase 2.5 percent before declining by 3.4 percent, respectively, in the same years. The outlook for spending on transportation equipment calls for a 10.3 percent decline in 2007 followed by a further 2 percent decline in 2008. However, aerospace equipment should grow by 11.8 percent in 2007 and by 12.1 percent in 2008.

There are other pockets of optimism.  Export growth should outpace that of imports by a wide margin by the end of 2008.  Inflation-adjusted exports should rise 7.7 percent in 2007 and 8.7 percent in 2008, while imports are expected to increase 2.1 percent in 2007 and 1.5 percent the following year.

“If the U.S. economy is able to avoid a recession next year, it will be due primarily to the declining value of the dollar and strong global growth, which shows up as substantial growth contribution from net exports,” Meckstroth said. “In addition, government spending growth should contribute positive momentum.”

The forecast for the unemployment rate is 4.6 percent in 2007, rising to 5.3 percent in 2008.

The report expects long-term oil prices to remain relatively high throughout the forecast period but will not consistently exceed $100 per barrel for West Texas Intermediate. Additionally, the forecast predicts housing starts and automobile sales will rebound once credit conditions and economic growth return to normalcy in 2009 and 2010.

Slowing labor force growth due to the baby boom generation leaving the work force and the associated deceleration in productivity growth will keep unemployment relatively low even in an economic slowdown, he added.

Floor Covering Weekly – FCW Prime August 16, 2007:

 Remodeling slows in second quarter

[Washington, D.C.] Remodeling activity slowed slightly in the second quarter of 2007, according to the National Association of Home Builders’ (NAHB) Remodeling Market Index (RMI). The current market conditions component slipped from 46.1 to 44.8 on a seasonally adjusted basis and the future expectations measure declined by more than two points to 44.1. The RMI measures remodeler perceptions of market demand for current and future residential remodeling projects. Any number more than 50 indicates that the majority of remodelers view the market conditions as improving.

“Not surprisingly, the remodeling market is following the downswing we are seeing in the overall housing market,” said David Seiders, chief economist, NAHB. “We expect some further erosion in the second half of this year and in 2008, followed by a gradual recovery in 2009 and beyond.”

Regionally, the Northeast exhibited some improvement with RMI readings jumping from 43.4 in the first quarter to 49.5, and future expectations remaining relatively flat at 44.1 compared to the previous quarter reading at 44.3. Other regions of the country reported declines in their RMI components. Current conditions in the Midwest fell from 47.5 to 44.5 and future expectations moved from 44.7 to 43.7. In the South, current market conditions declined from 45.9 to 42.3 and future expectations moved from 50.7 to 45. While the West showed a decline in current conditions from 48.2 to 46.8, future expectations rose from 45 to 46.

In the homeowner and rental components of the RMI, current activity for owner-occupied units remained flat at 47.5 compared to 47.7 in the first quarter, while the rental-occupied segment declined from 44.5 to 39.1. The future expectations for owner-occupied units decreased from 46.4 to 43.2, while the rental component declined from 41.4 to 37.3.

Floor Covering Weekly – FCW Prime June 25, 2007:

 Housing starts fall, but permits rise in May

[Washington, D.C.] Housing starts slipped 2.1 percent in May to a slightly lower rate than analysts had expected while building permit activity increased more than anticipated, a government report showed.

The start of new homes set an annual pace of 1.474 million units in May compared with 1.506 million in April, according to the Commerce Department. Economists had forecast May housing starts to drop sharply to a 1.480-million-unit pace from 1.528 million originally reported for April last month.

Building permits, which signal future construction plans, rose in May by 3 percent to a pace of 1.501 million units. Economists had been expecting the permits to hit a 1.471-million-unit rate.

Permits for single-family homes fell 1.8 percent to their lowest level since July 1997, but permits for multi-family units jumped 16.5 percent.

Last Tuesday’s data comes a day after a report indicating that homebuilder confidence is at its lowest level in more than 16 years.

Readings below 50 indicate more builders view market conditions as poor rather than favorable.

Builder confidence lags

Ongoing concerns about sub prime-related problems in the mortgage market and newfound concerns about rising prime mortgage rates caused builder confidence to decline two more points in June, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), released last week.  With a reading of 28, the HMI now is at the lowest level in its current cycle and has reached the lowest point since February 1991.

All three component indexes declined in June.  The index gauging current single-family sales slipped two points to 29, the index gauging sales expectations for the next six months fell two points to 39, and the index gauging traffic of prospective buyers fell one point to 21.

Floor Covering Weekly – FCW Prime March 13, 2007:

Remodeling activity remains steady

[Washington, D.C.] Remodeling activity remained steady in the fourth quarter of 2006, according to the National Association of Home Builders’ (NAHB) Remodeling Market Index (RMI). The current market conditions index edged up slightly from 47.8 to 48.2 on a seasonally adjusted basis and future expectations moved up to 46.0 from 45.4. (The RMI measures remodeler perceptions of market demand for current and future residential remodeling projects.)

“Remodeling retained strength across most of the country compared to late last year,” said Mike Nagel, chairman, NAHB Remodelers. “Certainly regional economies and housing markets play an important role, but overall we see maintenance of high levels of remodeling activity and solid future prospects.”

The RMI component for the rental market indicated a strong increase in activity for that sector in the forth quarter of 2006. The current conditions index for renter-occupied markets increased from 38.8 to 44.1, while current conditions in owner-occupied units decreased from 51.4 to 49.7. The future expectations for the renter-occupied units also grew from 37.1 to 42.4, and owner-occupied units edged up from 45.0 to 45.6.

Foreclosures may hit 1.5 million

[New York] As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, analysts and a Federal Reserve governor.

The spring buying season, when more than half of all U.S. home sales are made, has been so disappointing that the National Association of Home Builders in Washington, D.C., now expects purchases to fall for the sixth consecutive quarter after it predicted a gain just last month.

A five-year housing boom that ended in 2006 expanded homeownership to a record number of U.S. households. Now it has given way to mounting defaults, failing subprime mortgage companies and an increasing number of unsold homes.

Floor Covering Weekly – FCW Prime February 26, 2007:

 Q3 recap: Housing weakness impact felt on flooring

U.S. floor covering sales began to feel the full effect of the drop in domestic housing demand in the third quarter of 2006.  Total U.S. sales were estimated to have been 7.2 billion square feet this period, down 3 percent from the same period in 2005 and a 4.7-percent drop from the second quarter of 2006, according to Catalina Research, which exclusively provides this information to FCW.

 This weakness reflects the sharp drop in residential buidling permits and new housing starts in the third quarter of 2006.   U.S. residential buidling permits authorized in the third quarter of 2006 declined by 24.4 percent year over year, while housing starts declined by 19.1 percent over the same period.  The weakness was even more severe in the important new single-family home market, Catalina reported. There was also a significant decline in residential existing home resales. At the same time, the gains in new home completions from the higher level of new home starts in late 2005 and early 2006 began to wane. The sharp drop in residential permits and housing starts will result in additional weakness in the builder market over the next few quarters, Catalina reported.

The weakness in the builder market and existing home resales continues to be adversely affected by the peak in housing prices, mortgage interest rates and energy costs earlier in 2006. Currently, however, these drags on demand have become more favorable as home prices leveled off, mortgage interest rates trended downward, and energy costs dropped. In addition, personal income gains are strengthening. These positive factors could result in a turnaround in U.S. housing demand in the second half of 2007.

Meanwhile, manufacturers and marketers are increasing their emphasis on residential remodeling and replacement sales and the nonresidential market, research shows. Residential remodeling and replacement sales are benefiting from stronger personal income gains and spending on nonresidential and public building construction is increasing at relatively strong rates.

In the third quarter of 2006, spending on private nonresidential building construction rose by 21.2 percent over the same period in 2005, while public building construction spending increased by 9.1 percent over the same period. This compares to a 5.1-percent decline in residential construction spending.

The decline in residential construction activity was felt most by manufacturers and marketers of carpet and area rugs, wood and resilient flooring, Catalina Research reports. The decline in carpet and area rug sales accelerated soft surfaces’ downward share of total U.S. floor coverings manufacturer sales in 2006. However, the drop in resilient flooring demand was more than offset by rising prices. On the other hand, ceramic tile and laminate flooring continued to gain share over the first three quarters of 2006. However, laminate flooring sales experienced the sharpest drop in demand for any flooring sector from the second quarter to the third quarter of 2006. Laminate flooring sales are estimated to have declined by 8.2 percent over this period. This compares with 4.7 percent for the entire flooring industry.

Builders Report Numbers:

The nation’s largest homebuilders reported their latest numbers, and they weren’t pretty. The drop in sales for their latest marking period ranged from a 37.7-percent plunge for Beazer ($803 million compared to $1.105 billion the previous year), to a 1-percent dip for D.R. Horton, the nation’s largest builder ($2.761 billion compared to $2.789 billion the previous year).

Even more telling were the percentage increases of cancellation orders.

Centex said its cancellation of home orders for the third quarter was 38.5 percent and for the nine-month period was 36 percent.

Toll Brothers said its first-quarter backlog was down 30 percent compared to last year, signed contracts were down 34 percent and the first-quarter cancellation rate was 29.8 percent compared to last year’s cancellation rate of 8.8 percent.

Backlog for D.R. Horton was down 32 percent, or approximately $1.5 billion; new sales orders were down 23 percent and sales numbers for houses sold were down 38 percent or approximately $874 million.

For NVR, new orders in the fourth quarter were down 17 percent and the cancellation rate was 20 percent compared to 13 percent for the same quarter in 2005. The average sales price for new orders in the fourth quarter fell 10 percent.

Beazer said its cancellations were at a rate of 43 percent compared to 26 percent for the same quarter last year. The backlog was down 53.5 percent, a drop of approximately $1.5 billion.

Ryland reported that closings for the quarter were down 15.8 percent, with the average selling price up 4.2 percent to $298,000 from $286,000. New orders for the fourth quarter were down 44 percent and the backlog was down 50.3 percent compared to the fourth quarter last year.

Floor Covering Weekly – FCW Prime February 12, 2007:

 Remodeling survey shows positive signs

A survey of 5,000 homeowners conducted in the fall of 2006 indicates a continued trend toward remodeling and increasing concern for budgets.  The study was conducted by Dan Frietschen, author of “remodel or Move: Marke the Right Decision,” and “The Complete Remodeling Workbook and Orgnaizer.”

“While housing prices falling and interest rates higher than they were a few years ago, homeowners are still remodeling, but with an emphasis on managing costs,” Frietschen said.  “Just a year ago many homeowners were influenced by the wealth effect and were remodeling with a blank check. What the survey shows is that homeowners are planning to spend about the same amount, but are expecting to get more for their money.  Doing some of the work themselves is one way they can reduce the cost.”

Among the study’s results:

• 32 percent said they plan to act as their own contractor, up from 25 percent in 2005
• 65 percent will do at least a portion of the work, up from 60 percent in 2005
• 50 percent who plan to remodel will spend 30 percent of their home’s current value on the project.  In 2005 the number was 33 percent
• 55 percent want to remodel the kitchen; 47 percent want to remodel the bathroom
• 50 percent want more rooms such as dens and bedrooms.  57 percent plan to add one or more baths

 Portland Cement Associations Economic Forecast November 8, 2006:

Housing Drop Contributes to Lower Forecast for Cement
Cement Intensity Increases Expected to Soften Decrease in Consumption

SKOKIE, Ill.–According to the most recent forecast from the Economic Research department at Portland Cement Association (PCA) although cement consumption is not projected to decline, only marginal gains are expected.

The fall forecast, presented last week at the PCA Board of Directors Meeting in Sea Island, Ga., by chief economist Ed Sullivan, revises cement consumption growth for 2006 to an increase of .6%. An even more modest growth rate of .3% is expected in 2007 with more robust trends returning in 2008 when cement consumption is projected to increase by 2.7%.

The flattening of the market, according to Sullivan, is the combined result of the decline in the housing industry and softer overall economic conditions. “In recent years the U.S. and the cement industry have experienced unprecedented growth. However, construction activity is starting to soften and this will create an adverse impact on cement consumption.”

Sullivan sees cement intensity growth as key to market growth during the next couple of years. Cement intensities refers to the tons of cement per dollar of construction activity.

“Our forecast projects that cement intensities will increase by 2% in 2007, fueled by a favorable relative price position versus asphalt and steel, as well as a shift towards higher cement usage construction projects,” Sullivan said. “Code changes in hurricane-prone regions, improved concrete products, and concrete’s growth as a ‘green’ building material will all contribute to this despite a decrease in construction activity.”

Additionally, the PCA fall forecast does not expect the sharp decline in housing to continue at the current rate. Sullivan says the recent downward change in the housing market was driven by the departure of speculators from the market. Their exit will actually help introduce a correction to housing prices and improve affordability for the average homebuyer.

Ceramic Tile And Stone Consultants (CTaSC) reports:

USA per capita consumption of Ceramic Tile was 11.1 sf per capita in 2005, as compared to 2005 figures for Spain at 102.3 sf per capita, Italy at 35.6 sf per capita, Brazil at 25.9 sf and China at 16.5 sf per capita (based on 1.3 billion population).  This is indicative of the huge growth USA has realized from 3 ft per capita about ten years ago, and is an indication of the potential huge growth we have ahead of us.

William R. Holland, radio talk host and Senior VP at Prudential Securities, reported at the San Diego Tile Contractors Association on January 22, 2003 the following:

• DJIA was at 11,722 and dropped 42% in the last three years; 27% dropped in 2002 alone…ouch!
• 1939-1941 was the last time the market was down three years in a row; never has it been down four years in a row
• We are at Zero Inflation
• $6.6 Trillion is not invested in the market and accumulating at the rate of $1 billion per day; institutional investors holding back until market improves; and it will…
• Predicts DJIA will be at 30,000 by end of decade
• 77% of new mortgages are refinances
• China has a capitalistic population with a communist government that lets them prosper; China will continue to grow
• If Government eliminated taxes for those who make $40k or less annually, it would only reduce tax revenue by 1%
• Growth will continue in the Technological Revolution, Health Care, Housing, Automobiles, and Energy
• Economy is in a slight recovery

We will continue to update and add to this economic summary to help give a quick and clear view of the state of the economy.