Over a dozen large markets have had YOY price appreciation of 15%+, led by Austin’s 28%.
By Robert Isler
Housing and economic conditions both remain ripe for strong near-term growth in K&B remodeling, according to the recently released July update of NKBA’s 2021 Kitchen & Bath Market Outlook.
Sales of new homes spiked in April, with year-over-year growth of 91%. Since sales normally precede housing starts by one or two months, new kitchen and bath construction is forecast to be robust. In fact, according to John Burns Real Estate Consulting (JBREC), which conducted the field work, new K&B construction is projected to reach a record $100 billion for the year. Builders surveyed expect full-year housing starts to exceed last year by 18%, as COVID-related backlogs continue to make for a red-hot market. Geographically, the Northeast region and the state of Florida are leading the way, with housing starts expected to register gains three to four times the percentage of 2020’s increases. Overall, the purchase mortgage application index, a gauge that also includes existing homes, rose 25% year-over-year in April.
The Outlook also examined home appreciation in specific markets across the U.S. It found that over a dozen appreciated at least 15% over last year. Combined with a dearth of inventory of homes for sale, it’s clearly a seller’s market. For those seeking to buy, this is obviously not a welcome trend, but for homeowners considering a remodel, it is just the type of development that can push them to act. There is a direct correlation between strong home appreciation and high-end remodels. This is evidenced by the projected 28% growth in that segment for the year, well above the gains expected for mid-tier and low-end remodels.
There is a direct correlation between strong home appreciation and high-end remodels. This is evidenced by the projected 28% growth in that segment for the year.
Along with Austin, Tex., which leads the way with a 28% year-over-year appreciation vs. last April, Phoenix is at 22%, Salt Lake City comes in at 21%, Seattle registers 20% and, rounding out the top five, Tampa, pulls in with 19% appreciation. Clearly, the Pacific Region is doing quite well.
So what could slow this train down? Well, if continued home-price appreciation were accompanied by an uptick in mortgage rates, which remain very low but are beginning to show signs of turning, that would definitely have a considerable effect. Although 70% of households (82 million) currently can afford a $200,000 mortgage and 42% (50 million) can support a $400,000 loan, that’s with rates hovering around 3%. Should they increase by a point to 4%, more than 5 million households would be priced out. Consumers are well aware that continued price appreciation and low mortgage rates won’t last forever. According to the Fannie Mae Home Purchase Sentiment Index released in May, the measure of whether consumers currently consider it a good time to buy a home plunged by 35% after a year of being in the 50%-to-60% range.
Turning to employment, the Outlook reports there have been steady monthly additions to the job market following the crash in April 2020. At the pandemic low, 23 million jobs had been lost. Since then, 14 million have been recovered. In fact, the latest government release for June, published after the NKBA study was completed, showed that 850,000 more jobs had been added — the highest increase in 10 months. That translates into a recovery of over 70% of all lost jobs. Additionally, unemployment rates have been edging downward. Although they seem to have leveled — at least for now — in the 6% range, according to JBREC, it means the nation has normalized and is no longer considered to be in a recession.