The decline of housing as a factor

Feb. 1, 2012
As I write this, I’m getting ready to attend the International Builders Show in Orlando with clear memories of last year.

As I write this, I’m getting ready to attend the International Builders Show in Orlando with clear memories of last year. In 2011, the AHR Expo claimed attendance of around 50,000 and it was packed. The Builders Show claimed around 55,000 and it was pretty easy to walk around and talk to anybody I wanted to because they weren’t occupied with anyone else.

When we were putting together our 2012 forecast, I was really struck by something I was told by Chris Peel, chief operating officer for Rheem. New construction accounts for only 10% of the water heating market, Peel noted; in 2006 it was 20%.

“On the HVAC side, we’re hanging steady at 15%-17% of the market for new construction, which is substantially lower than the 2005-2006 timeframe,” Peel said. “Most of our competitors in the spaces we serve have adjusted their businesses for the new construction market being borderline to non-existent.”

At the beginning of February, the National Association of Homebuilders cheered for small victories.

“According to the Census Bureau, total spending on private residential construction projects increased 0.8% during December,” NAHB said in a press release. “The initial estimate for November was revised measurably lower from an increase of 2% down to an outright decline of 0.3% (due primarily to a sizable downward revision to home improvement spending), while the reported growth rate for October was bumped up to 2.8%. Overall, private residential construction activity was on a modest upward trend during the second half of 2011 as spending increased in four of the final five months of the year. On a year-over-year basis, spending rose 4.9%–the largest percentage gain since June 2010. For the calendar year as a whole, spending reportedly fell 1.1% versus 2010, which marks the smallest rate of decline in construction spending for a calendar year since the housing market downturn began.”

Spending reportedly fell a mere 1.1%. We’ve improved from horrible in 2009 to merely so-so today.

At least the remodeling market is ok. After a slow start, home improvement spending is expected to trend up later this year, according to the Leading Indicator of Remodeling Activity (LIRA) released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. If this momentum continues to build during the second half of the year, remodeling activity is on course to end 2012 on a positive note.

“We’re beginning to see some hopeful signs in the economy, and the housing market is finally starting its slow recovery,” said Eric S. Belsky, managing director of the Joint Center. “That should prove helpful for home improvement spending as the year progresses.”

“Sales of existing homes have been increasing in recent months, offering more opportunities for home improvement projects,” said Kermit Baker, director of the Remodeling Futures Program at the Joint Center. “As lending institutions become less fearful of the real estate sector, financing will become more readily available to owners looking to undertake remodeling.”

Contractors should see our friends at organizations like Quality Service Contractors, the Service Roundtable and the Nexstar Network. They all can show you how to make the most of your opportunities in the residential service and replacement markets.

There is business to be had, residential and commercial, in energy and water conservation. One of my favorite authors, Jerry Yudelson, who’s been named the Godfather of Green by Wired magazine, predicts that the focus of the green building industry will continue its switch from new building design and construction to greening existing buildings.

“One fast-growing LEED rating system the past two years has been LEED for Existing Buildings Operations and Maintenance, with cumulative floor area in certifications now greater than in existing buildings, and I expect this trend to pick up in 2012,” said Yudelson.

You’ll also be able to learn a lot at CONTRACTOR’s own conference and expo, Mechanical Systems Week, slated for September 19-21 at the Schaumburg (Illinois) Convention Center right outside of Chicago. We’ll have a full schedule of business-building educational tracks for HVAC, plumbing and hydronic heating contractors, along with the Comfortech Show displaying the latest technology and solutions. Plan to attend.

Just remember, everything is cyclical — the weather, bad fashions, the new construction market.

Probably the best advice comes from Matt Stevens, president of The Stevens Construction Institute: “Whatever your informal view is of our current economic situation, remember that business markets expand and contract but rarely stay the same. In the future and in the past, economic recoveries occur. Each of us is hopeful one is now emerging.”

About the Author

Robert P. Mader

Bob Mader is the Editorial Director for Penton's mechanical systems brands, including CONTRACTOR magazine, Contracting Business and HPAC Engineering, all of which are part of Penton’s Energy and Buildings Group. He has been  with CONTRACTOR since 1984 and with Penton since 2001. His passions are helping contractors improve their businesses, saving energy and the issue of safeguarding our drinking water. He is a graduate of the University of Notre Dame with an A.B. in American Studies with a Communications Concentration.

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