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Between the
Planks: Gaining Insight on the
Home
Building
Market of 2004 and Beyond
By Jennifer
Lee
June 2004
Following on the heels of a momentous year in the housing sector, 2004 has
certainly begun to fill the shoes of what has been left in the wake. While a
few analysts are saying we are officially in a bear market, others are
pointing to the growth potential, despite any rise in interest mortgage
rates that could be on the horizon.
Put
simply, the demand for increased housing appears to be there. After we saw
an increase in US industrial production of 1.1% in May, with builders
starting to work on more homes and construction permits reaching their
highest annual rate in three decades according to Bloomberg, investors are
wise to question, but where do we stand beyond this?
Well, according to money manager Edgar Wachenheim III, recently profiled in
a Forbes article: “The housing market isn’t a bubble. Home ownership is on
the rise (from 64% of households in 1994 to 68% in 2002) and won’t abate, he
argues, since even in tough economic times Americans will part with a lot of
other assets before parting with their houses.” He gave further comment on
the building industry itself that, “Leveraging their advantages, the ten
leading home builders will control 40% of the American market by 2010. The
growth in the market, the expansion in their share of it and their costs
efficiencies will combine to deliver 20% to 30% annual earnings gains.” He
reminds once again that if you are in the market for long term growth, you
can’t sweat the small term trends.
Taking a
closer look at the manufacturing side of things from a recent Bloomberg
report, factory production rose 6.4% in May and with new construction ever
on the horizon, it is not expected to level off, according to a recent
Harvard “State of the Nation’s Housing Report.” Harvard’s report finds that
“housing construction appears to be in line with long-run demand and a
strengthening economy should support house prices. In addition, changes in
the housing finance system have made markets more resilient and better able
to adjust quickly to interest-rate movements.”
Issuing
this same report, The Joint Center for Housing Studies concluded that, “In
the longer run, the housing industry is well positioned for another strong
decade. New Joint
Center projections suggest household growth between 2005 and 2015 will be at
least ten percent higher than previously projected bringing the total
increase to over 13 million households.”
According to the same source Eric Belsky, executive director of the Joint
Center for Housing Studies says, “Given higher household formations, demand
for second homes and replacement of units lost from the stock, production
should reach at least 18.5 million and could top 19.5 million if immigration
remains at current levels.” The overall findings do indicate that “27% of
households in 2003” were headed by minorities, which they say will factor in
“at least two-thirds of net household growth in the coming decades.
However
if as Jonathan Basile, economist for Credit Suisse First Boston Inc. says,
manufacturers are “doing a little more of the heavy lifting in the economy,”
taking a look at some of the developments that are being made to secure the
long lasting nature of housing, in terms of health and safety, is a
necessary check we should figure somewhere into this equation.
According to the National Fire Protection Association (NFPA), in 2002,
“Public fire
departments responded to 1,687,500 fires, including 519,000 structure fires.
Structure fires resulted in 2,670 civilian fire deaths and 15,600 injuries.
Residential and commercial direct property damage was $8.7 billion.
Nationwide, a civilian fire injury occurred every 28 minutes and a civilian
home fire death every 156 minutes.”
As this was
the lowest toll since the NFPA began collecting data in 1977, it is evident
that fire protection and home safety measures are registering clearly in the
minds of many North Americans.
In
spotting this trend, companies like International Barrier Technology, Inc.
appear to be taking advantage of the opportunity to encourage and implement
building designs that safeguard even further against fire hazards in the
home. The Company, which was founded in 1992, provides proprietary fire
resistant building materials to commercial and residential building
projects. They own and utilize a patented, non-combustible, non-toxic
formulation (Trademarked Pyrotite™) to coat wood panels and make them
fire-resistive. Pyrotite also has the potential to be applied to engineered
wood products, plastics, paint and expanded polystyrene.
Their Blazeguard wood panels have since been used by top US home builders
like Centex, D.R. Horton (DHI), KB Home (KBH) and Lennar (LEN).
Company president Mike Huddy has added as more and more builders are having
to meet with strict fire and safety codes, “Even if there was a moderate
decline in the housing sector (which we do not expect), increasing our share
of building products used in whatever projects continue, will serve as a
hedge against any downturn.”
An increased emphasis on fire safety and the enforcement of existing
building codes will have a dramatic impact on the home building market, over
the next couple of years. Since Blazeguard imparts a “non-combustible”
surface to structural wood panels and thereby does not allow fire to start
or spread across the wood’s surface, buildings sheathed with Blazeguard are
less likely to catch on fire than a home sheathed with untreated wood
panels. Blazeguard develops very little smoke in a fire and also boasts a
burn-through resistance that is “nearly triple that of uncoated panels”
according to Barrier.
As we
look at market determinants such as the increase in factory production,
which jumped 6.4% in May, (according to Bloomberg), over last year, keeping
an eye on innovative companies who are driving at increasing home owner
security in this industry, could be very well warranted in times ahead.
For more
information please see:
The State of the Nation’s Housing,
2004 Harvard Report:
http://www.jchs.harvard.edu/publications/markets/son2004.pdf
“Betting the House: Ed Wachenheim thinks fears of a housing bubble have no
foundation. He has $1 billion riding on his beliefs.”
By Brendan Coffey, Forbes
http://www.forbes.com/magazines/forbes/2004/0621/194.html
Jennifer Lee
Jennifer Lee has a degree in English Literature from the University of British Columbia . She holds a publishing certificate from Simon Fraser University and has worked at both Vancouver and Western Living magazines, where she began her career as an editorial intern. She has worked as an editor in countries such as Zimbabwe and South Africa , producing books, newsletters and editing various quarterly magazines on a variety of international development related topics. In South Africa , she worked to help produce a bi-weekly newsletter for the Institute for Security Studies on crime and corruption headlines which appeared in all national and provincial papers. Prior to working in southern Africa , she wrote articles for DMR Consulting, on mergers and acquisitions taking place in the market during 2001. She now produces a quarterly publication at the University of British Columbia and works on the side as a freelance writer.
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