Housing markets continue to have major impacts on the secondary wood industry. So, what are the steps being taken by wood products manufacturers in order to stay viable?
As a follow-up to last year’s article, “Housing Market’s Impact on the Secondary Woodworking Industry” (Wood & Wood Products, July 2010), the focus of this year’s study was to update trends in the industry and discern what has changed in terms of industry performance, market conditions, and the actions being taken by secondary firms to remain profitable. The study was a joint product of Virginia Tech, the USDA Forest Service, and Wood & Wood Products. Three hundred and twenty-five woodworking professionals participated in the online study, spanning wood products manufacturing industries integrally connected with the housing market: cabinet manufacturing, fixtures and millwork, furniture and components (see the “About the Survey” at the end of the file for more details).
Figure 1: Value of private U.S. construction Difficult Housing Markets Continue
Many of the issues confounding housing markets, as discussed in last year’s article, remain in play today. For example, new single-family home sales fell to a record low in February 2011, suggesting that demand for new housing — and the secondary wood products needed to furnish them — continues to be soft.
One of the biggest problems continues to be excess housing inventories, which leads to downward pressure on prices and low demand for new construction. According to figures from the U.S. Census Bureau, in March 2011 the inventory of new homes for sale was at about a seven-month supply. Similarly, according to the National Association of Realtors, the supply of existing homes on the market was at about an eight-month supply. In addition, foreclosures are expected to remain high in 2011, in essence constituting a “shadow” housing inventory that further adds to the supply of existing homes over time.
With the over-supply of homes from these sources, new single-family housing starts remain low, although Census Bureau figures show there was slight improvement in the number of single-family starts in 2010 (471,000) compared to 2009 (445,000). However, the seasonally adjusted annual rate for the first quarter of 2011 was trending lower than for 2010 (422,000), suggesting that consistent improvement in new home construction remains elusive. These figures compare to 1.7 million single-family starts in the peak year of 2005 — a decline of 75% — illustrating the severity of the downturn.
Fortunately for the industry, other construction-based markets exist for secondary wood products, but the situation outside of single-family housing remains somewhat mixed. As shown in Figure 1, spending in residential improvement markets (i.e., remodeling) has remained somewhat stable over the past three years, offering opportunities for secondary wood products manufacturers.
Figure 2: Compared to the previous year, last year's sales volume was... Improvement in Sales
Despite the difficulties faced in construction markets, respondents in this year’s study demonstrated some level of recovery, or at least stabilization after the previous year’s heavy decline. Half of respondents (50%) reported losing sales volume in 2010 compared to 2009, which was a marked improvement over the previous result of 81%. In 2009, 60% reported year-over-year sales volume declines of 20% or more, compared to 32% in 2010. Also in 2010, 39% reported sales increases of at least 5%. (See Figure 2)
Figure 3A: Proportion of 2010 production volume in single family housing compared to the previous year However, these improvements must be tempered with the fact that 61% said that sales volume was worse or unchanged from what was a very difficult year in 2009. Given that the residential housing market has not improved much overall, this suggests that companies have found other sectors, such as remodeling, more profitable. The results from this study help bear this out, as shown in Figure 3A, where the percentage of respondents with 61-100% of their production volume in the single family housing market declined in 2010, compared to 2009.