Monthly Issue
From Home Furnishing Business
October 24,
2017 by Jane Chero in Business Strategy, Industry 
Since most markets are not growing much in size, the only way to increase business without expanding to another market, is to sell more within the existing market. We can accomplish this by selling more people in our current market, selling more to the people we already sell in the market or preferably doing both - thus gaining share. While most retailers think about this mainly in relation to the other furniture stores they see in their area, the reality is that much of their battle for market share is against distribution channels they don’t always consider in their analysis. In addition, the very nature of who we are and what distribution channel we belong to, also can make our job either easier or harder!
To put this in perspective, in 2015 there were 6,774 fewer furniture and home furnishings establishments in the U.S. than there were in 2009, roughly a 12.3% reduction. During the same period of time, the total (all channels) furniture and bedding industry sales grew from $74.17 to $93.39 billion, an increase of $18.83 billion or 25.4%. Given the reduction in retail locations and the healthy increase in volume, it would certainly indicate that the remaining furniture and home furnishings stores must have flourished, particularly since the industry grew another $3 billion in 2016.
Of course, we all know that it wasn’t quite that simple and while there was great growth for some, many others struggled just to maintain what they had. Let’s take a look at the share data from a sales performance trend standpoint so we have a better understanding of who the players really are and how we got here.
At their peak in the 60s, 70s and 80s these “traditional distribution channels” were so dominant that they accounted for as much as 95% of the furniture business in the USA. As the consumer revolution began to take hold in the 90s, the customer began to seek out other ways to buy our products and we saw the birth and eventually the dramatic growth of multiple new channels for them to choose from.
As the graph below shows, these new “alternative” distribution channels began to eat away at the market share of the original ones, to the point where they now account for just under 37% of the home furnishings sales. In other words, the traditional channels have lost over 60% of their share to the new comers. So, let’s take a look at them now. (Graphic 4)
Many of these “newcomers” were not actually new at all, having been around for many years. Their growth in the last couple of decades came for many different reasons. In some cases, existing alternative format retailers just began to put more emphasis on furniture. In other cases, more companies decided to jump onboard and do business in a retail format they had not done before. In addition, consumers changed how they wanted to buy and what they wanted to get from the relationship with their retailer of choice. This helped grow some existing retail formats and also drove the development of new ones.
Of the traditional channels, only the regional chains enjoyed growth over the last five years, while the independent channel gave up over 50% of its already shrinking share. Some of this loss was actually the result of some large independents becoming regional chains through expansion and others converting to manufacturing verticals. Department stores continued to struggle, losing about 10% of their piece of the pie. In fact, if you looked at the top 10 furniture and bedding retailers list from the 90s, most if not all of the companies on it would have been from the traditional channels. Today there are only two from those channels on the Top 10 list. That is a huge change.
As I have said before, data does not give you answers. It only helps you ask better questions. The main questions this data raises are centered on determining why the customer is choosing to take their business from one channel to another and what can you do to keep those customers and attract others?
As a sales coach, one of the things I find most interesting is how the consumer interacts with the retailer during their shopping/buying experience. If you think about it, the three channels that have gained the most share in the past two decades, Lifestyle Stores, Mass Merchants and the Internet, all have a significant difference from the other five channels – they don’t have sales people in a role like the others. Yes, recently Pottery Barn has added designers to most of their stores, but during their growth period they mainly provided clerks that had some product knowledge, but whose role was to help customers find things, not necessarily to sell them things. If you can find anyone to talk to at most Mass Merchants they have a similar clerk role, but normally with much less specific product knowledge. Of course, with the Internet the customer is for the most part on their own most of the time unless they request help.
The next fastest growing segment has been the Bedding Specialty stores. While they do have sales staff performing basically the same role as the traditional channels, they have been very successful in changing the consumer’s perception of that role. The very nature of being at a single category specialty store indicates that the staff are specialists in that area. Since getting a good night’s sleep is the main goal of a mattress purchase, having someone who they believe can help them do that is very important and these stores have done a good job of getting their customers to buy into that.
So what is the main take-away from this observation? As said in many previous articles, we are dealing with a much more educated and style-aware consumer now than we did before HGTV and the Internet. Because they are more aware and have taken the time to research their purchase, they are more confident in their ability to make a major decision for their home. Therefore, many do not feel that they need a sales person and perhaps they carry the same fears as previous generations about the quality of the help a traditional sales person will provide to them. So they shop at places that don’t make them deal with someone they don’t want involved in their shopping process, at least until they are ready.
This is certainly not the only reason that almost 50% share is going to these newer alternate channels. Price, convenience, selection and simplicity also play a major role. What I am saying is that if the customer felt they really needed a sales person, then that number would not be nearly as big. Of course, as we know, most customers actually DO need the assistance, either making the right product selection or putting the total room package together. The problem is they don’t believe that we can help them so they do not value the service we provide!
Therefore, the key thing we must do to be more successful with these potential customers is to help them understand all we can do for them to make the result of their efforts so much better. We are in an age of DIY and unless we can convince our audience that they will enjoy both the process and the result more if they let us partner with them, we will lose them to the newer, faster, simpler, cheaper, slicker and more “in” channels.
Product, selection and price are not the way to separate yourself from these “new competitors”. They can beat you with all of those. Make sure you use your website and marketing programs to drive the message of what you can do that they can’t. Sell your total package of benefits and the fact that you will be there after the sale to continue the relationship. Be part of your community and participate in as many local events and projects as you can. Be the answer to your market’s needs, not just someone that sells product within the market.
It is not going to be easy, but the enemies are at your gate. You need to know who they are and how to fight them or they will continue to steal market share from you!
October 23,
2017 by Jane Chero in Business Strategy, Industry
In 1965, recent college graduate Alex Sarratt and two fraternity brothers from the University of North Carolina set sail -- literally -- for Spain. They weren't quite sure what they would be doing when they got there, but they had a hunch that it would be a good place to start a business since the country had been opened to outside investment only six years earlier.
One of the three decided this Spanish adventure wasn't for him and returned to the U.S. about six weeks later. But by 1967, Sarratt and Walter Reid had formed a company called Sarreid and were exporting accessories and accent furniture to North America.
After a couple of lean years, the business took off. And the rest, as they say, is history.
Fifty years later, Sarratt is still a partner in Sarreid. He and Reid sold the company in 1985, but Sarratt teamed up with Charles Hoffman and Charles Mauze to buy it back in 1990. And the company's business remains healthy -- buoyed by a product line that includes a lot more than accent furniture.
Sarratt recently spoke with Larry Thomas, senior business editor of Home Furnishings Business, about the company's history and its future.
Home Furnishings Business: What made you decide to go to Spain to start your business?
Alex Sarratt: Rather than go to law school, which maybe all three of us would have done, we just had an inkling to go to Spain. And we had a friend whose father was in the freight leasing business. He said he would let us go to Spain on one of his freighters at no cost. So all three of us left from Richmond, Va. We had a car and a dog that we took with us.
When we went there, it was a second-world country. Spain hadn't been open to outside investment until 1959, so we were early arrivals to try to do business there. If we had gone to Italy, France or Germany, it would have been totally different.
HFB: What led you and Walter Reid to get into the furniture business?
Sarratt: I guess you could say it was fate that led us into the sourcing hand-crafted accessories and accent furniture. The giftware business was big then, but there really wasn't a commercial category for these types of larger items. We were young and wore sport coats and ties, and everybody thought we were Americans who had a lot of money.
HFB: What were the reasons for its early success?
Sarratt: We were doing things offshore with people who were artisans, which was a category you couldn't find in America. We were working with wood carvers, sculptors and painters. We were able to create a product that was not available in America. We went offshore not to save money, but to create a certain type of product.
An example of that would be in Spain or Italy, the craftsmen did a lot of carved religious figures and things like that. We were able to take those skills and have them make early American folk art. We started making objects like beautiful horses, and other animals that were all hand-carved and finished. I'm pretty sure we were the first to do that.
We went to Italy in 1970 and opened an office there. Italy and Spain were our resource countries until the early 80s. Then Italy and Spain applied for membership in the European Union in 1985. And one of the criteria was that wages had to rise until they equaled French and German wages. So that killed the export industry in about four or five years.
At that point, we went to Mexico, and we went to the Philippines. And then in 1990, we went to India and Hong Kong, where we could source product from (mainland) China.
HFB: So Sarried was one of the first furniture companies to source product from China?
Sarratt: Yes. Back in those days, we didn't have any competition from domestic companies. But when they all went offshore, we were basically just like them, even though we had more experience. But also, when the major manufacturers went to India, China and Vietnam, they brought expertise with them. And they brought suppliers of chemicals and wood finishes and kiln dried wood, and all the machinery that's needed to make fine furniture.
So by 2000, we were gearing up to be a furniture manufacturer. And now, we sell everything but bedroom. It's still hand crafted, still hand-made, still hand-finished. We're at the high end.
HFB: What are Sarried's strongest furniture categories today?
Sarratt: In furniture, it's coffee tables and dining tables. There's a lot of value in each, and they don't take up much freight. We make everything with KD legs in a very sophisticated assembly process, so they're strong.
I'd also say our leather upholstery is strong.
HFB: In 50 years, Sarried has weathered at least four recessions. What's your secret to success during these times?
Sarratt: There are times during recessions when you have to go into a survival mode. We have put money back into the company during those periods. The 1980 recession was pretty tough. The 1987 recession was really tough. The 2000 recession wasn't so bad, but certainly the 2008 -2009 Great Recession was the worst thing anybody had been through. Most people's business fell off by 50% overnight. In September 2008, people just stopped buying, and they didn't buy anything in 2009. And of course, a lot of stores went out of business -- big and little.
Since that time, stores have not chosen to stock. Resources like Sarried have to have the inventory. Somebody will buy one dining room set and put it on their floor, and they want us to ship when they sell one. It's almost like people who lived through the Great Depression in the 1930s. They can't forget what happened, and they're afraid it's going to happen again.
HFB: What's the biggest technological advance you've seen in recent years?
Sarratt: The advent of e-commerce was enhanced dramatically by the iPad, which is only five or six years old. Prior to that, the only way our industry could sell was through photographs that a sales rep had to carry. And we probably had 2,000 photos, and they weighed 120 pounds. (laughs). So a rep would have all these photos in his car, and he would have to select what he wanted to show a certain retailer.
Now on the iPad, it's all there and (the categories) are all divided electronically.
Plus, reps can now see the inventory, so they tend to sell things that are available. (The rep) wants to get paid a commission and a buyer doesn't want to purchase something he can't have right away. That has made things very, very efficient, and we can update things constantly.
HFB: Does Sarried do a lot of business through e-commerce today?
Sarratt: The majority of our sales are still from brick-and-mortar stores. The category that has grown more than any other is interior designers, because they become our best sales people. Our better dealers have interior design departments, too. But when you do business with an interior designer, you're placing furniture rather than waiting for somebody to come pick it out and take it home.
The population under 40 isn't used to shopping at a mall or in a store. If they want something, they look on their phone ... and they feel comfortable buying it that way.
The challenge for our dealers, of course, is to have an extremely good website. And whatever you did last month, you want to make sure it's improved a little bit this month.
But on the other hand, having customer service people in our office that can receive a phone call or an email or text, and take care of that customer is critical. That's no matter who is it. It can be the store that’s our customer or it can be the consumer. We have to take care of them, too. We can't say 'call your dealer.'
That has changed the whole dynamics of how you become a manufacturer and distributor of home furnishings.
May 17,
2017 by Jane Chero in Economic News, Industry
This is the first in a two-part series on Mobility in America. Part 1 featured on the following pages, focuses on the profile of “who” is moving. Part 2 in the upcoming June issue will detail where people and moving and what motivates them to move.
Once a nation of movers, Americans are increasingly less likely to sell their homes or leave their apartments and move across the country or even down the street. With only 11.2 percent of people moving from 2015 to 2016, American mobility is at an all-time record low. Since the 1950’s, mobility has plummeted almost 50 percent – from 21.2 percent of the population changing residence – down to 11.2 percent in 2015 to 2016 (Table A). While the previous decade’s stagnant change in residence can be owed partly to the economy, this downturn has been steady for over forty years.
Because a move often spurs a furniture or home furnishings purchase, the question for the industry then becomes, who is moving? According to the Census Bureau, many of the movers are non-married, under 35 renters, many with children. The closer to the poverty level, the more likely a person changes residence. This article is a snapshot of current movers and what factors might determine mobility at this time in America – age, marital status, owning versus renting, and poverty status.
Age of Movers
By far, younger adults moved the most from 2015 to 2016. Twenty-three percent of 20 to 24 year olds and 20.1 percent of 25 to 34 year olds moved last year – double that of 35 to 44 year olds (11.1 percent) (Table B). With increasing age, the percentage of an age group’s mobility declined significantly.
For example, less than 4 percent of adults over age 55 moved between 2015 and 2016.
Fifty percent of all persons changing residence 2015 to 2016 were split evenly between children (24.9 percent) and young adults 25 to 34 (25 percent) (Table C). Of the 35.1 million movers, 23.7 million (67.3 percent of all movers) were under the age of 35.
Marital Status
Marital Status plays a major role in a person’s desire, ability and necessity to move (Table D). Not surprisingly, 17.2 percent of separated people moved in 2016 with never-married people following close behind at 15.8 percent. Eleven percent of divorced individuals moved last year, while only 7.4 percent of married individuals changed residence. Widowed individuals tend to stay put with only 5.1 percent in the category moving.
Table E shows that at 37.4 percent, single, never married people were the highest category of movers from 2015 to 2016. In the same time span, married individuals were the greatest portion of nonmovers at 41.5 percent.
Owners vs. Renters
Just over one-third of the population lives in renter-occupied units. As expected, renters of housing units change residence much more often than owners of housing units (Table F).
Of the 108.2 million renters from 2015 to 2016, 24.8 million were movers (22.9 percent), compared to just 5 percent of owners. Only 10.3 million people in owner-occupied units moved last year, while 196.4 million homeowners remained in the same residence.
Renters accounted for more than two thirds (70.6 percent) of movers from 2015 to 2016 (Table G).
Poverty Status
Although 13.5 percent of the population is below 100% of poverty (Figure 1 and Table H), 22.6 percent of movers were these lowest income households.
Americans at 150% of poverty (incomes over $36,450 for a family of four) accounted for 66.4 percent of movers from 2015 and 2016 and 79 percent of nonmovers.
Americans with higher household incomes (above $36,450 for a family of four) are choosing to stay in place – only 9.6% moving in 2016. As Table I shows, the poverty category with the lowest income had the highest percentage of Americans move over 2015 to 2016, 18.6 percent of those below 100% of poverty moved over last year.
The series continues in the next issue.
April 20,
2017 by Jane Chero in Business Strategy, Industry
By larry Thomas
When it comes to dining at home, every day has become casual Friday.
And it has transformed what was once a niche within the dining room furniture category into the principal driver of business in the category. In fact, when retailers and manufacturers discuss the dining room category these days, it’s essentially all about casual dining.
“Those huge dining room groups just aren’t as important as they used to be. Those sales are few and far between,” said Bob Colin, senior buyer at Indianapolis-based Kittle’s Furniture. “In a lot of houses today, there’s a great room instead of a dining room. It’s much more casual now.”
And today’s casual dining means more counter-height tables, smaller case pieces, few large china cabinets and an incredibly wide array of finishes, textures and styles that didn’t exist in the days when formal dining ruled the kingdom.
“The more transparent the finish, the better,” said Jeb Bassett, senior vice president of Bassett Furniture’s wood division. “There’s not a lot of traditional cherry out there — even though it is available.”
Bassett Furniture, in fact, is so committed to casual dining that it has an entire factory in Martinsville, Va., devoted to the category, which it calls Custom Casual Dining. The company recently spent about $2 million to upgrade the facility, and the new equipment allows for faster drying times for the many custom finishes that are the centerpiece of the program.
But even with the upgrades, Jeb Bassett said business has been so brisk that the factory often operates 50 to 55 hours per week to keep up with demand and meet the company’s commitment to having custom-order furniture in the consumer’s home within 30 days of purchase.
“The more casual looks are more popular today than formal dining,” Bassett said. “Whether it’s a larger home or a smaller home, the living environment has all changed. The American consumer is just more casual.”
Research by Impact Consulting Services, parent company of Home Furnishings Business, bolsters that viewpoint. In a recent survey of consumers who recently purchased dining room furniture, 88% of respondents said they most frequently eat meals in a casual dining area or room, while only 12% said they regularly eat in a formal dining room.
Respondents said they also do a variety of other activities in the dining room or kitchen in addition to eating. The most frequently mentioned activity was simply sitting at the table and talking, which was listed by 28.7% of respondents. Some 17.9% said they watch TV, while 16% said they pay bills and 15.5% said they work on hobbies.
In addition, 12.3% said they do school work at the table, while 9.7% admitted to doing work brought home from the office.
“The open kitchen is taking on a role similar to that of a multi-purpose room, with a lot of other living activities happening in a space that was traditionally reserved for meal preparation and eating,” said Chris Henning, president of iron furniture producer Wesley Allen, which is enjoying success with metal dining sets featuring round tables that are 36 to 48 inches in diameter.
Not surprisingly, the Impact Consulting research showed that 72.8% of recent purchasers said their furniture was purchased for a casual dining area, and only 27.2% said it was for a formal dining room.
Among those who did buy casual, 45.5% said the purchase included a table, while 42.3% said they bought chairs. Only 3.7% said they bought a buffet or sideboard, and the same percentage said their purchase included a china cabinet.
Among formal dining purchasers, 13% said they purchased a buffet or sideboard, while 5% bought a china cabinet. And interestingly, the majority of those same purchasers said they didn’t eat in the formal dining room very often. Some 26.2% of respondents said they dine there less than four times a year, and another 35.2% said they eat there four to 12 times a year. Only 15.4% said they eat there daily.
However, 45% of recent casual dining purchasers said the casual dining area in their home was within the kitchen, while another 6.7% said it was a kitchen bar area with stools or chairs. Some 45.4% said it was an area separate from the kitchen, and only 1.9% said their home didn’t have a casual dining area.
Those trends have caused Wesley Allen and many other producers to target at least a portion of their product line to Millennials, and to a lesser extent, Generation X. In many cases, that means the consumer won’t necessarily buy chairs that match the table, said Diana Zaldivar, vice president of sales and merchandising at International Furniture Direct.
“The mix-and-match trend has been around for quite a while, but it’s finally getting into the mainstream,” Zaldivar said. “We’re no longer requiring our dealers to buy a set. And we’ve designed our tables so that you can use almost any of our chairs with them.”
She said these eclectic purchasers are moving the design needle away from traditional and toward contemporary and transitional looks. “People are looking for something that’s not too traditional but not too crazy, either,” she quipped. “It’s not a look that you will get tired of seeing. It’s a nice contrast that you can live with.”
Zaldivar and other executives agreed with Jeb Bassett that there has been a significant shift away from the traditional darker cherry and oak finishes and into lighter gray and white finishes.
“Gray is growing, but not as the same pace as white,” said Zaldivar. “People just can’t seem to get enough of the white finish.”
The same is true at importer Sunny Designs, where its Bourbon County collection, which features a white finish called French Country, is its top-selling dining group.
“We’ve got that group placed coast to coast. It’s retailing everywhere,” said Gil Sturtzel, Sunny Designs’ vice president of merchandising. “When you get something that you can sell everywhere, you know you’ve done it right.”
Sturtzel said one very popular feature is a storage system for larger dining tables that allows expansion leaves to be placed in felt-lined shelves underneath the table top. And many Millennials, meanwhile, are asking for wine storage racks to go along with their dining tables and chairs.
“I think Millennials are drinking more wine than anybody in the history of the planet,” he quipped. “So, we’re adding wine storage to a lot of our groups.”
At Kittle’s, Colin said the retailer’s key vendors include Canadel, which is popular at middle to upper middle price points because of the almost infinite number of custom finish combinations that are available, and Jofran, which he said is a top-selling line at lower price points because of the quality, styling and value it represents.
“Canadel is extremely hot. Our customer loves the ability to custom order it and get it quick,” Colin said. “They’re willing to pay for quality. They’re willing to pay to customize it.”
However, he said the number-one dining room product currently on Kittle’s floor is Klaussner’s Trisha Yearwood Home line, which he described as being styled well and priced well. “That’s about as formal as we really get,” he said of the Yearwood line.
He noted that Kittle’s also is having success with the Rachael Ray Home dining room line from Legacy Classic. And while he acknowledged he has not always been a huge fan of licensed collections from celebrities, he said it’s hard to argue with the success of both the Trisha Yearwood and Rachael Ray products.
“Some of the celebrity products do make sense on the dining room side,” he said.
Jofran’s Studio 16
Featuring a warm, wire-brushed distressed finish and metal detailing, this stylish group is suitable for a variety of room settings, especially when paired with the genuine leather Avalon dining chairs shown here. The table and four chairs retails for about $1,099.
Caracole’s Open Invitation
A restrained yet elegant silhouette defines this statement-making rectangular mahogany table. The custom designed finish brings out the mahogany grain and offers a subtle gold fleck, which is suspended in the finish. The legs and table apron are finished in a complementary Espresso Bean finish, and a thin Gold Bullion bead delineates the table’s apron. The table is 98 inches long and can be extended to 142 inches.
Bassett’s Artisan Dining
This bench-made domestic product is crafted from Appalachian hardwoods selected for their distinctive wood grains. The hand-planed live edges and exquisite finish give it an heirloom quality. Rectangular tables that seat eight to 10 are available in 72-inch, 90-inch and 108-inch models.
International Furniture Direct’s 962
A longtime best-seller, it features a hand-wrought iron base with metal trim and nail heads around the top. The table top features a distressed multi-color finish on solid wood, while the chairs are 100% solid wood and ship fully assembled. Approximate retail for table and 4 chairs is $1,299.
Fine Furniture Design’s Brentwood
The Brentwood Mila dining table, combined with the Mina dining chairs, feature an artful mix of styles, textures, materials and details that appeal to those who are equally comfortable at a world-renowned restaurant or eating takeout at the kitchen table. The table, shown here in a Sherwood Natural finish, has a tulip pedestal base.
Approximate retail price is $5,500 for a table and four chairs.
Klaussner’s Trisha Yearwood Home
This popular collection includes Trisha’s Table, which features a coffee brown finish with heavy distressing and burnishing to create an uneven, relaxed appearance. It is shown here with the Nashville arm chair and Monticello Display china cabinet, which is a statement piece itself. The 102-inch table and four chairs retail for about $1,399.
Sunny Designs’ Bourbon County
The distinctive ladderback chairs, wire-brushed oak top and French Country finish have helped make this dining group a winner in all regions of the country. Made of poplar solids, the leaf can be stored in a felt-lined compartment under the table. Approximate retail is $999 for the table and four chairs.
Wesley Allen’s Tucson
Aimed squarely at Millennials and their dislike for formal dining tables, this is one of several casual dining sets that have become hot sellers. Made of hand-crafted iron, it is suitable for an eat-in kitchen and can double as a place for the kids to finish their homework.
Universal Furniture’s Synchronicity
The boldness of mid-century, California coastal architecture inspires this casual contemporary group, reflecting the relaxed 1960s culture in Southern California, with strong linear forms, cantilevered and slab elements. The mellow two-tone finish features a medium brown Horizon stain and a creamy Morning Light complement. The table retails for about $1,425.
John Thomas Select
The snow white finish of this gathering height table, paired with black onyx chairs, is one of more than 2,000 finish combinations available with this domestically produced line.
LumiSource’s Oregon
The industrial look is in full view with this popular set, which features metal legs and backrests juxtaposed with wood-finished seats and tabletop. It is available in antique metal/espresso wood, Grey metal/brown wood, and vintage white metal/ espresso wood. Table and four chairs retail for about $679, while bench retails at $199.
Standard Furniture’s Cambria
Featuring vintage styling, this best-seller invites you to gather ‘round with friends and family. It has weighty vase turnings and a distressed two-tone black and dark toffee finish. Approximate retail price is $1,649 for the table, two armchairs and six side chairs.
Vanguard Furniture’s Hoag Lane
From the Thom Filicia Home Collection, this table is made of Manchurian walnut solids and veneers and is available in a variety of finish options, including standard stains, artisan wood stains and premium leaf’s. It includes two 20-inch extensions, allowing the table to expand up to 120 inches for up to eight guests. Suggested retail starts at $4,497.
April 20,
2017 by Jane Chero in Advertising, Economic News, Industry
After years of fighting back from the housing bubble pop, the Housing Industry is finally on the mend and appears to be getting healthier by the year. Although still shy of 2007 pre-recession levels, housing appears to be catching up fast despite a couple of stumbles last year. This article picks up from Statistically Speaking’s September 2015 article Housing’s Rebound.
Although the rate of growth slowed for existing home sales last year, unit sales approached pre-recession levels. Meanwhile, new home sales, while still well below pre-recession numbers, are catching up to pent up demand as housing construction steadily increases its new single family homebuilding. Multi-family construction is the one area lagging in 2016, but starts are up in 2017. With both rental and homeowner vacancies at their lowest, the Housing Market is, most assuredly, on an upswing.
As shown in Table A, indexed growth for existing home sales in 2016 was only 3.6 percentage points shy of peak 2007 pre-recession sales. In 2016, 5.49 million existing homes were sold compared to 5.65 million in 2007. For new homes, the 559,000 units sold in 2016 were still 27.8 percent below the 769,000 sold in 2007. However, as construction has played catch-up to demand, new home sales have grown 82.7 percent since the recession bottom of 2011.
New Home Sales
New home sales had a solid performance in 2016 – increasing 11.3 percent from 2015. However, sales are off to a slow start with January sales flat on a seasonally annualized basis (Table B).
Existing Home Sales
Despite dipping in 2014, existing home sales (Table C) have grown steadily in recent years – up 3.8 percent from 2015 to 2016 and another 4.4% jump into January of this year.
Existing home sales grew consistently throughout the country last year. The Northeast region, the smallest in terms of home sales, was the fastest growing last year – up 5.7 percent 2015 to 2016 to 740,000 units plus an 8.1 percent boost (seasonally annualized) to start off 2017. Increasing 2.8 percent from 2015 to 2016, the South still leads the pack with 2.2 million existing houses sold in 2016. The Midwest had a slight decline from 2016 to January 2017 – down 0.8 percent to 1.3 million annualized resales, while the West had the biggest leap into 2017 – increasing 8.4 percent in January to 1.29 million annualized units (Table D).
New Housing Construction
Despite the growth in new and existing home sales last year, New Housing Construction, specifically, multi-unit apartment construction fell considerably. After solid gains since 2011, combined growth of single and multi-unit construction went negative last year – falling 0.5 percent to 1.17 million units. Due to booming housing starts in January of this year, 2017 began 9.6 percent higher with a seasonally annualized average of 1.29 million units (Tables E and F).
As shown in Table G, single-family construction has maintained its upward trajectory since the Great Recession. However, 2016 single- family units totaling 747,000 are still 23.1 percent below peak 2007 levels. Meanwhile multi-family construction at 392,000 units in 2016 is well below the 451,000 in 2015.
The flat growth in new construction was not a result of declining construction of single-family units (Table H). Growth has continued unstopped in recent years – increasing 7.5 percent from 2015 to 2016. Up 8.1 percent annualized, the first month of 2017 builds on the momentum.
The slowdown of total new housing construction came solely on the shoulders of multi-family apartments and condominiums where construction fell by 13 percent in 2016. On a positive note, authorized permits for the first month of 2017 are up 13.7 percent (Table I).
Rental and Homeowner Vacancy Rates
Rental vacancy rates at 6.9 percent are at their lowest in over 30 years, giving way to high rents (Table J). Meanwhile homeowner unit vacancies have also continued to drop to 1.7 percent in 2016 – the lowest in over 10 years.
The vacancy rate of rentals is lowest inside metro areas, both in principal cities and in the suburbs, compared to outside of metro areas. Inside metro areas for both urban (principal cities) and suburban areas have similar vacancy rates at 6.7 percent and 6.3 percent respectively. These rates have continued to fall over the last seven years. Meanwhile, vacancies outside metropolitan areas are much higher at 9.4 percent last year and have shown little improvement over the last few years (Table K).
For homeowner units, vacancy rates in the suburbs of metro areas are low at 1.5 percent in 2016 and only slightly higher at 1.9 percent in principal cities of metro areas. Vacancy rates outside metro areas are higher at 2.3 percent (Table L).
Pent up demand from Millennials aging into their prime homeownership years combined with low vacancy rates have set the stage for good housing growth in the near future. And nothing spurs the home furnishings industry as much as home sales.