Multiple Drivers Set Stage for Solid Recovery

Surge in new home starts, record low mortgage rates and increased small business hiring fuel potential K&B liftoff.

By Robert Isler

July’s 33% year-over-year increase in new home starts was the largest jump for that indicator in five years. Just three months earlier, that same metric had been down 30% compared to the previous year. It was just one of many housing-related turnarounds highlighted in the September revision of the 2020 Kitchen & Bath Market Outlook — and it likely bodes well for the future of our industry.

Another driver with explosive potential is mortgage rates. Hovering under 3%, they are close to a full point below where they were a year ago. At these levels, it is estimated that an additional 4.5 million households will meet the criteria for obtaining a $200,000 mortgage. As a result, it’s  not surprising that after taking a huge hit in April, when COVID-19 first struck, mortgage applications in June and July shot back up to pre-pandemic levels and remain near highs not seen in at least the past several years.

Home appreciation, in turn, often correlates with a desire for larger-scale remodels. Combining these factors, housing and home improvement as a percentage of GDP is looking
more like 2002, when the industry led the economy out
of recession.

Still another positive that looms large for kitchen and bath redesign is existing home inventory. The historical three-month average is just under 2.4 million units. Currently, that figure is barely above 1.5 million, 20% lower than the same period last year. The last time inventories even approached these levels was back in 1995. High demand and low inventory is a classic formula for meaningful home value appreciation, and there are already early signs of it. Home appreciation, in turn, often correlates with a desire for larger-scale remodels. Combining these factors, housing and home improvement as a percentage of GDP is looking more like 2002, when the industry led the economy out of recession.

Then there’s the employment story. Small business hiring plans, an index of expected hiring for the next three months, has bounced back from its COVID-19 lows and is now actually above its long-term average. Meanwhile, total U.S. jobs, which had steadily risen since 2009 to a job cycle high of 152 million in 2019, are also rebounding. Following an April plunge to 130 million, nearly half the losses have been recovered. By July, U.S. jobs stood at 140 million. Although there’s still a long way to go to return to levels recorded at the start of the year, if that trend also continues, just about all the key pieces will be in place for a strong K&B recovery.

For more information or to purchase the full report, click here.