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What Sells: THE DINING AREA: A room with no rules

Now, the pandemic has stripped away any rules left for the dining category. While some consumers gravitated to rekindling family meal time around a large table, others chose to blend intimacy with functionality – creating space with smaller, cozier tables paired with arm chairs, desks or sofas. When it comes to the dining area, consumers want options. Manufacturers and retailers are called to the challenge by supplying a variety of products to fit an array of needs.

When consumers were polled during a FurnitureCore survey (FurnitureCore is a sister company of Home Furnishings Business) and asked the area they most recently purchased dining room furniture for, 71.32% said a casual dining area and 28.68% said a formal dining room. The desire to incorporate a versatile dining space has led to a rise in contemporary and modern dining room furniture. During the same consumer research, FurnitureCore asked consumers what style of furniture they had in their casual dining room area. 40.74% answered contemporary, followed by 29.49% with traditional, 11.8% with country/ rustic and 6.7% with country/European. The categories of mission/shaker, cottage, and transitional each accounted for 3.75% of consumer response.

Always popular are dining tables that can serve both small family dinners and large gatherings. Stickley has found success with its bestselling Walnut Grove Table that expands from 74” to 110”. “Customers old and new have flocked to the Walnut Grove Collection and are making new family memories around the rectangular dining table and chairs. The blend of mid-century modern and Scandinavian design is fresh and appealing,” said Matt Target, director of marketing for Stickley. Greenington’s bestselling collection with an expandable table also bridges contemporary design with functionality. According to Vice President of Sales Troy Lerew, “the Erikka Collection provides a modern design with timeless appeal. Our dealers will tell you that it provides the perfect solution for any size dining room.”

The dining room has become a hybrid space used for what people need at different times in their lives and for many that is still the formal dining room. Tradition, paired with European design, is driving the success of Hooker Furniture’s current bestseller. Mike Harris, president of Hooker Upholstery and Case Goods says, “Commanding attention in any space, the Castella Table is a European-inspired, traditional piece that pairs seamlessly with wood and upholstered dining chairs alike. Its size and scale are perfect for entertaining, and its soft, rustic finish works well with several variations of décor.”

Whether the style is traditional, modern or country and being used for office space, homework, a dinner party of eight or a small family dinner, consumers are now putting dining room furniture in all different living areas of the house. Consumers were asked by FurnitureCore to choose from a list of activities that their family does in the dining room/kitchen in addition to eating. Sit at table/talk received 77.44%, followed by watch TV at 45.51%, pay bills at 42.83%, do hobbies at 36.52%, do school work at 28.30%, and do work brought from the office at 27.72%.

In line with other furniture categories, dining room furniture sales have skyrocketed over the last year. Based on the FurnitureCore Industry Model, developed by Impact Consulting Services, parent company to Home Furnishings Business, research shows that the dining room category has increased steadily since 2019, finishing 2021 with $14.96 billion in sales, up from $12.62 billion in 2020 and $11.44 billion in 2019. While sales dipped 2.4% from $3.73 billion in Q1 of 2021 to $3.64 billion in Q2, sales rebounded by 7.1% from $3.66 billion in Q3 to $3.92 billion in the final quarter of last year. Whatever you call the space you put your fabulous new table and/or chairs in, the dining category is not going anywhere.

Statitiscally Speaking: It Took Rising Inflation to Finally See Furniture Industry Price Growth

The U.S. Personal Consumption Expenditures (PCE) price index for all consumer spending in total goods and services rose in 2021 at the fastest pace since 1981, 5.8%. The better-known consumer price index (CPI) jumped by an even higher 7%, roughly 5% higher than the Federal Reserve considers a healthy annual inflation close to 2%. The Fed views the PCE index—the core rate in particular—as the most accurate measure of U.S. inflation. It is more comprehensive and takes into account when consumers substitute cheaper goods for more expensive ones, among other things. (See Figure 1: Definitions).

As shown in Table A, up until 2021, furniture and bedding products were worth less than in 2012, and growth came through selling more product at a cheaper price with imported goods adding the pressure.

Consumer spending on furniture and bedding products increased 21.9% in 2021 over the previous pandemic year (Table B). In terms of chained dollars (2012 base year), the industry grew 13% - inflation pushing current dollar growth 8% higher. (See Figure 1. Definitions). In 2015 through 2017, current dollar growth could not keep up with chained dollar growth. The deflation really began to make a mark in 2016 with furniture industry current dollar growth of 6.7% compared to 9.2% for chained growth, forcing companies to sell almost 50% more to make up for the falling prices.

While annual 2021 produced major growth in consumer spending for furniture and bedding, sales dipped down by the end of the year. In January of last year, furniture industry sales jumped 17.4% over the preceding December 2020. March, August and October also showed monthly growth – 8.4%, 4.2% and 3.3%, respectively. However, consumer spending slowed in November, down 1.3% over October and fell significantly in December, down 7% compared to November (Table C). As shown in Table D, furniture is the fastest growing home furnishings product with consumer purchases well over $100 billion compared to all other products in the same category.

Among electronics, consumer spending on computer software and accessories steadily increased an average of 12.6% from 2016 before pandemic demand and inflation pushed spending higher to 18.2% in 2021 to $135 billion (Table E). The pandemic also pushed increases in consumer spending on slower-to-grow categories – major household appliances, televisions and personal computers/tablets – above 18% from 2020 to 2021.

Figure 2 summarizes the growth in consumer spending among selected major furniture and home furnishings categories over the last three years add a column to reflect inflation in 2021 (December 2021 over December 2020). Furniture, along with carpets and other floor coverings, were the best performing of the home furnishings categories, both increasing 21.9% in 2021. However, all other categories also experienced double-digit growth above 15%. Furniture products were also hit the hardest with inflation at 13.8% in 2021, partially explaining the high growth. No other home furnishings broad category was close to that number in terms of inflation. (Note: Year-end Inflation is usually calculated as December over prior year December, in this case December 2021 over December 2020, 13.8% for the furniture industry. However, furniture industry average annual monthly inflation in 2021 was 8%.)

How did furniture growth and inflation compare to other consumer products? Figure 3 shows that durable goods, including furniture, were the economic workhorses of the pandemic. Consumer spending on services had led economic growth since 2015, outpacing spending growth on both durable goods and nondurables. However, during the pandemic shutdown in 2020, consumer spending on services dropped 6.7% and grew the slowest of the three main sectors of the economy – durable goods, nondurables (including food and energy) and household consumption of services (Figure 3). The drop in 2020 in services spending was not entirely the consumer’s choice as restaurants, theaters, sports arenas, and travel closed for a significant period. However, many consumers have been slow to return those services. Inflation for gasoline and other energy goods was highest at 47.9% as well as 22.8% for motor vehicles.

Quantity Index vs. Price Index The falling prices and deflation experienced by the furniture industry coming out of the Great Recession only started to recover last year as inflation began to impact furniture and most other consumer products. Without growing price support, the quantities needed to maintain annual growth have skyrocketed.

Figure 4 depicts how since 2021, the quantity index of furniture items sold grew at twice the rate (2.0) compared to price growth. Reading the table for furniture, a quantity index of 209.5 means that quantities of furniture purchases have increased 109.7% between 2012 to 2021 (2012 index=100). Conversely, prices are only 2.3% above 2012 levels, and this just happened in the last year 2021. But furniture has fared better than all other home furnishings broad categories. The television industry is an example of one of the hardest hit electronics categories experiencing exploding price deflation falling 73.3% 2012 to 2021. The rate of growth in quantities sold versus price increases for selected home furnishings and electronics is shown in Figure 4. Product sales growth is a combination of the increase (or decrease) in prices plus the increase (or decrease) in quantities sold. (Note: Year-end inflation is generally reported December over previous year December. Comparing quantity and price indexes requires averaging monthly indexes to reflect the impact for the whole year.)

Deflation (falling prices) continued for the furniture industry coming out of the Great Recession until 2018 when inflation picked up 0.1%, finally closely matching the quantity index to current dollars (Table F). The price index hovered above 2% from 2018 to 2019 and was 0.1% from 2019 to 2020 before exploding during the pandemic. In 2021, the quantity index (13%) paired with inflation/price index (8%) pushed current consumer spending on furniture to a 21.9% growth.

Pricing remained relatively steady for carpets and other floor coverings after 2013 (Table G). Current dollars kept up to the quantity index with very little change in the price index. The pandemic pushed the price index up 2.6% from 2020 to 2021, increasing current dollars by 21.9% with a quantity index of 18.9%.

After a negative price index through 2018, consumer spending on major appliances began to improve. Current dollars rose by 9.9% from 2019 to 2020 and another 18.8% following the start of the pandemic. The price index reached 10.8% from 2020 to 2021 (Table H).

By far the hardest hit from falling prices before the pandemic is the television category (Table I). The price index dropped to as low as -19.6% in 2016 and the quantity index reached as high as 31.2% in 2019 with current dollar growth at only 5.8%. Inflation has helped the pricing gap for televisions. From 2020 to 2021, quantity index was 12.4% and 5.8% from the price index pushed consumer spending to 18.8%.

Compared to other home furnishings products, inflation has given the furniture category a big jump in pricing last year. The category of clocks, lamps, lighting fixtures, and other household items suffered from a negative price index (deflation) up until last year. In 2021, consumer spending grew 21.4% alongside a quantity index of 18.1% and just 2.8% on the price index (Table J).

Cover Story: Is LessMore In a Post-Pandemic Industry?

The obvious result was significant pressure on the retailers to expand their floor assortment to accommodate the demand. With these major line extensions came a deterioration of the manufacturerretailer partnership. The rationale – our product line is broad enough to sell multiple retailers in the same market without duplicating product. Thus marked the beginning of the disintegration of the manufacturer’s brand from a consumer’s perspective. You see it everywhere, no exclusivity.

What Did Retailers Do?
Retailers responded in the ensuing decades with expanded store size facilitated by the bankruptcy of many of the big box chains. The result was increased sales but not in direct proportion to the increased square footage. Currently sales per square foot is $240 annually. Interestingly larger retailers ($100M+) and smaller retailers (<$5m) achieved an advantage of 50%.

The productivity has declined as store size increased and furniture retailing abandoned its “store as a designation” to pursue multiple stores in the same market. Decades ago, furniture stores’ selling productivity (inflation-adjusted) exceeded today’s performance metrics – Less Is More?

Even the freshman majoring in business has been exposed to the concept of 80/20. In other words, 20% of the product line would represent 80% of the product sold. This is not true for furniture retailing where the top 20%’s product line represents less than 50% to 60% of sales.

 

This concept raises the question – can we do with fewer products and produce the same volume of sales? During the supply chain disruption brought on by the pandemic, retailer merchandise assortment declined. The graphic below presents the comparisons.

Interestingly the impact on upholstery (stationary/fabric) was felt immediately while casegood assortments were maintained. There is an obvious relationship between domestic and offshore production and the delivery cycle. The decision to remove and replace the slot was delayed with anticipated delivery.

The rotation out of the top slot did shift significantly from quarter to quarter as may be seen by comparing the current quarterly ranking of SKUs to pre-pandemic rankings. Note the movement in ranking by SKU from quarter to quarter in a typical traditional retailer with over $10M in sales.

What did change significantly was average unit selling price. As may be seen from the graphic, upholstery was stable ($654/unit) from 2019 Q3 to 2020 Q3 but exploded by 24% a year later (2021 Q3) to $810 per unit. Casegoods performed similarly but dining (tables) moved slower from $391 per unit to $426 per unit, an increase of 9%. This deviation by price points is more obvious when we compare a price distribution curve for stationary upholstery (fabric) for sofas/loveseats in 2019 and 2021 Q3 YTD.

It should be noted that the percent of units sold in 2021 Q3 in the below $499 price range decreased from 38.5% to 21.1% in 2021 Q3. In terms of dollars, the percent declined from 22.5% in 2020 Q3 to 11.1% in 2021 Q3.

What Did Manufacturers Do?
Contrary to retailers’ opinion that manufacturers just increased prices and sent delayed delivery notices, manufacturers scrambled to satisfy demand. As was discussed earlier, manufacturers – unbridled with capacity restraints – pursued all retailers that could be sold. Armed with the justification that their lines were broad enough that multiple retailers could include their merchandise assortment without cannibalization, manufacturers continued to sell to as many retailers as possible in a market. This foundation strategy assumption overlooks that there are limited sales and purchasers in each market (MSA). The fact is, many manufacturers cannot determine their sales in each of the 404 specific markets (MSAs) in which 95% of all furniture is sold. The table below illustrates the required business intelligence (ILLUSTRATION ONLY).

 

It should be noted that this lack of sales in smaller markets is an opportunity to sell to retailers in those markets or directly to consumer via e-commerce. Most manufacturers, lacking this more in-depth knowledge of where they sell, resorted to using an axe instead of a scalpel in adjusting their retail distribution. Manufacturers were forced to reduce their retail base in order to improve their delivery. It is difficult to measure the impact of the 20+ year relationship that was destroyed. Now that the painful cuts have been made, the old familiar term of PARTNERSHIP has emerged. Maybe it will be more than a one-night stand and evolve into an enduring profitable relationship. Again, can SELLING FEWER (RETAILERS) BE MORE?

In addition to curtailing their retailer base, the focus became merchandise line reduction in order to improve the delivery time. In the past decade, the focus was “endless aisles”. The emerging term is a “curated assortment”. The impact of the broken supply chain has been a reduction in the product line-up. As may be seen from the graphic below, the post-pandemic consumer has shifted from design to a combination of value and quality – a challenging blend. The table below presents a percentage of consumers ranking each element in preference order. With the reduction in their retailer base and a curtailing of their merchandising assortment, manufacturers will be able to improve service levels to the normal four-to-six-week cycle. While the adjustments have been painful on both the manufacturing and retail sectors, the demand continues as illustrated below.

Though this graphic is reassuring, we need to understand that this is revenue demand – NOT unit demand. In other words, sales have increased based upon the average unit price and increased close rate – NOT increased traffic into the store. Thus the challenge is still there to create product that attracts consumers to the store or to the website to buy.

 

What Sells: TAKING SLEEP Seriously

A popular choice for consumers looking to combine technological advances in foam with innerspring is a hybrid option, offering the best of both worlds. Finding luck with their best-selling hybrid model, Mlily USA’s President Stephen Chen says, “A good night sleep is a pathway to a healthier life but it’s what’s inside the mattress that really counts. Consumers love the Fusion Luxe because it’s backed by science and includes seven layers of quality materials that combine the strength and support of individually pocketed innerspring coils with the cool plush comfort of our adaptable foam technology for comfort and support.”

When discussing Southerland’s success with the Signature Hybrid Collection, President and CEO Bryan Smith “continues to see an increased number of consumers looking for a hybrid sleep experience, which is one of the reasons this collection is such a big hit. It’s the Goldilocks tale – three of the models are copper-infused latex hybrids, and the other three feature the gel memory foam- but there is one just right for every consumer.”

Along with a growing number of consumers willing to spend money on premium and luxury bedding products, the vast array of choices leads many to spend more time researching online. Over the past decade, the mattress market has grown exponentially. The direct-toconsumer model has produced an explosion of online companies and a variety of options for potential buyers. According to a FurnitureCore Inc. survey developed by Impact Consulting Services, parent company to Home Furnishings Business, of consumers that recently bought a mattress, 27.78% spent one-to-two hours online before making a purchase, 31.95% spent threeto-four hours, 14.58% spent five-to-sevenhours and 12.50% spent seven hours or more.

Increasingly, manufacturers and retailers are looking for ways to improve their sustainability efforts. Consumers are paying closer attention to fabrics and materials, whether that is looking for products that are sustainable and environmentally friendly or hypoallergenic. According to Nick Bates, president of Spring Air International, the best-selling Nature’s Rest line “provides Spring Air’s retail partners with a product offering that attracts consumers who believe natural is better and who have an appetite for a more sustainable natural sleep experience.” In addition to the growing list of mattress options paired with specific personal requirements, the consumer’s awareness that a mattress needs to be replaced periodically keeps this industry thriving. However, the timeline does vary among consumers. Based on the same consumer survey, the majority of consumers, 50%, believe a mattress should be replaced every six-to-10 years. 6.94% of consumers believe that it should be replaced within 5 years, while 34.73% replace their mattress every 11-15 years and 6.94% every 16-20 years. The remaining 1.39% replace every 20 years or later.

Based on the FurnitureCore Industry model developed by Impact Consulting Services, research shows that the bedding category took off in the second half of 2020, finishing the year at $16.74 billion. In 2021, sales skyrocketed 52% from the first quarter to the second quarter. At $15.58 billion in the third quarter of 2021 year-to-date, sales were 25% higher than 2020 Q3 YTD. In this highly competitive category, manufacturers are taking sleep seriously and working hard to provide each consumer with the perfect mattress.

 

Statistically Speaking: The Furniture Industry Eyes Growing Favorable Demographics While Housing Struggles to Meet Demand

Housing Industry’s Struggle to Meet Demand The housing market had four distinct growth phases over the tenyear period that has brought it to today’s dilemma—namely, how to catch up with demand (Table A). Phase 1. 2011-2013: Post Great Recession. Coming out of the Great Recession the housing industry accelerated. Builders geared up, prices climbed, interest rates were low. The annual spending for new and existing homes grew over 20% each year in both 2012 and 2013. Prices climbed over 10% a year. Meanwhile the furniture industry struggled post-recession growing at an annual rate of 3% over the two years.

Phase 2. 2013-2017: Economic Growth. Things settled down for four years as the economy grew. The housing market averaged 7.1% growth over the four-year period and the furniture industry a similar 7.4% annual increase.

Phase 3. 2017-2019: Housing Industry Slumps. The housing industry got in a big hole between 2017 and 2019 when demographics dictated it should be growing. Over a two-year period, the housing market fell 1%. In 2018, sales were down 2.4% and up only 0.4% in 2019 as prices fell 0.7%. According to the Federal Reserve, declining affordability, higher mortgage rates, higher construction costs and declines in equity prices slowed the U.S. housing markets.

Phase 4. 2019-2021: Pandemic and Recovery. The pandemic brought a wave of low inventories and high demand and even higher prices. Builders powered through labor problems and new and existing home sales dollars grew annually just over 10% in 2020 and 2021. Meanwhile, couped-up pandemic consumers went wild buying furniture, with sales up 9.2% in 2020 and 21.5% in 2021 (preliminary) to an average of 15.2% for the two-year period.

This issue of Statistically Speaking looks at the housing industry’s recent struggles to address pent-up demand as household growth is set to further explode. Housing demand at its basic level is about building enough units to satisfy the annual increase in household formations plus replace older homes no longer habitable or units in geographic areas no longer desired. For the first time since the 1970s, when the Baby Boomers hit the home buying scene, home and apartment builders have scrambled to catch up in the last decade (2010 – 2020) as more households were formed than units built. In the last two years, the construction industry has tried to close the gap all while in the midst of a pandemic and its recovery. As shown in Table B and Figure 1, a historic housing crunch occurred between 1971 and 1980 as Baby Boomers began entering the housing market. After 1980, new housing completions were able to stay ahead of household formations until 2010, a 30-year stretch. Our current housing crisis has been a decade long one with 1.1 million fewer homes and apartments built since 2011 than households formed.

The housing industry is pushed forward by various drivers and stumbles when faced with industry barriers (Figure 2). Demographics are poised to be the primary industry driver as Millennials are currently entering their prime home buying ages. Alongside this driver is a barrier as older home owners are choosing to stay put as rising prices deter them from moving up. While household formations have stalled in recent years, there are indications that they are now on the rise. Low mortgage rates are also a key driver, but rapidly rising inflation will likely make those rates go higher. The two major barriers are low inventories and rising housing and apartment prices. And Fannie Mae predicts inventories will stay low for the next 10 years. Affordable prices for homes and rentals may have leveled off at the end of 2021, but no sign yet that they are falling. Rising apartment rates are a major economic concern going forward.

Alongside these housing industry’s consumer drivers and barriers is the construction industry with its own set. Unwavering demand is the main construction driver. However, labor and material shortages and supply chain bottlenecks and may further hinder the industry going forward (Figure 3). Lumber prices peaked in May of 2021 and fell 70% before year-end, but in December they began climbing again and the supply chain was still unstable at press time. Labor shortages appear to be easing. Adding fuel to the fire, the National Association of Home Builders (NAHB) reports 76% of builders in Fall of 2021 cited the low supply of buildable lots as critical.

Demographics
The housing industry not only has a lot of catching up to do, but is facing a tsunami of new households in the next 15 years that should bode well for the furniture and housing industries. In 2014, the age group 25 to 39 surpassed the older 40 to 54 segment in size as Millennials began to pour into ages 25 to 39. These post-college Millennials, though initially slow to get out on their own, are key drivers to household formations and the leading edge of primary furniture buyers. The smaller Generation X which now solidly sits in the 40 to 54 age group are in their prime income years and have driven the furniture industry in recent times. These higher earning 40-to-54-year-old consumers will grow as leading-edge Millennials transition into this older age segment. As shown in Table C, the important thing about 2022, is that this year both age groups key to the housing industry and especially the furniture industry will be increasing at the same time until around 2030. In 15 years, the Millennials will have aged into the 40 to 54 age group and the 25 to 39 age groups will start to decline as the smaller Generation Z emerges.

Housing
Over the last year housing starts geared up and began to dig out of the pandemic setbacks and address the pent-up demand. Recent November data from the Census Bureau signals a positive step forward. Table D details the monthly path for housing starts and housing completions beginning just before the pandemic in December 2019 through November 2021. During the two-month period at the end of February 2020 through April 2020, Covid-19 brought housing starts to trickle, falling 41%. But starts came roaring back last year and peaked at an annual rate of 1.725 million in March 2021 then struggled until November, when they jumped 11.8% over October to 1.68 million annual units, a significant indicator for the housing recovery (Table E). With supply chain disruptions, housing completions have become longer drawn-out affairs. Since the peak in March of last year of 1.5 million annualized completions, the number of finished houses, condos, and apartments in November is still 14.4% below that peak compared to March.

Both single-family and multi-family starts posted double digit one-month growth last November compared to the previous month. Single family starts of 1.17 million were 11.3% higher than October and multi-family starts in November were at an annualized rate of 506,000 units, up 12.9%. Year-to-date November 2020 to November 2021, starts increased 15.4% for the one-year period to an annualized rate of 1.58 million units with multi-family unit starts growing slightly faster (Table F). Single-family starts grew 14.7% over the one-year period to 1.12 million units (annual) and multi-family units increased 17.3% to 466,000 annualized units. Regionally, starts in the Northeast grew the fastest, up 24.2% overall (single-family and multi-family), followed by the West with 18.0%, the South at 14.4% and Midwest the lowest at 9.0%. The Northeast and West had the highest oneyear growth in multi-family unit starts, 32.3% and 33.2% increases respectively. The other three regions are a majority of single-family housing starts with the South showing the lowest growth in multifamily units at 7.3%.

While multi-family starts are growing quickly, for the total U.S. last year (November 2021 YTD), 70.6% of housing starts were single family (Table G). Leading the way was the South at 76.2% single family. Meanwhile, for the Northeast, multi-family units totaled over 50% of starts.

Housing Permits
Housing units permitted (seasonally adjusted at an annual rate) provides a window into the near future a few months ahead. And while not all permits materialize as housing starts, they are a key indicator of what lies ahead. Permits peaked last January 2021 at 1.88 million units and transformed approximately three months later in March as peak starts of 1.72 million (annual rate). Last January was the single highest month for permits since May of 2006, just prior to the Great Recession. Since January 2021, permits have followed a general up and down trend until September growing steadily through November to 1.71 million units (Table H). This three-month growth in permits will translate into starting in the first part of this year.

Housing Inventory
During the pandemic, housing inventories fell to 3.5 months in September, October and November of 2020, the lowest levels on record (since 1963). The month’s supply is the ratio of houses for sale to houses sold. The months’ supply indicates how long the current for-sale inventory would last given the current sales rate if no additional new houses were built (Table J). Inventories began to ease in March of last year with over 6-months of housing supply by the end of last year.

Housing Prices
Home prices exploded throughout the pandemic and through last year. The National Association of Realtors projects that prices softened a bit toward the end of last year 2021 and will continue to moderate and grow more slowly in 2022. In 2021, the median existing home price was estimated to be $340,200 and $385,200 for a new home. This is a 14.7% increase for existing home prices and 14.3% for new homes over one year. The National Association of Realtors forecasts prices to climb in 2022 - 2.8% for existing homes to a median price of $349,800 and 4.4% to $402,000 for new homes (Table K). Unfortunately, the rising prices will continue to keep new home buyers out of the market and stuck in a cycle of paying high rent without the ability to save for a down payment on a home.

The challenge for the furniture industry since the Great Recession has been an unrelenting loss of consumer share of dollars spent on paying for homes and apartments. The Consumer Price Index quantifies price increases not just for furniture and bedding, but also the CPI for rent for primary residences and another category called “owners’ equivalent rent of primary residence” which is defined as the amount of rent that would have to be paid in order to substitute a currently owned house as a rental property. Table I shows historically that as the furniture industry struggled to get prices up after the Great Recession, rents and owners’ equivalent rents grew steadily. The CPI for furniture and bedding fell 7.3% between 2010 and 2018. In 2019 the furniture industry finally saw an increase of 2.3% before the pandemic shoved prices down again. Then by November 2021 furniture prices had exceeded the 6.8% growth in overall inflation increasing 7.5% year-to-date. For rents and owners’ equivalent rents, since 2015 prices increased between 3.3% and 3.8% annually for both. In 2021 (November YTD) that growth slowed to 2.1% for rent increases and 2.4% for owners’ equivalent rent. Note that rent and home price growth are slower to show up in inflation figures. Rents usually don’t impact inflation until a lease turns over. So even though rent prices fell in 2021 in the CPI, recent month-to-month increases are some of the fastest in 20 years. Apartment List estimates that new lease price increases for apartment rents will be up 16.2% in 2021.

Mortgage Rates
Low interest rates have been a key driving force in home sales. In the second quarter of last year, 30-year fixed rates moved higher than 5/1-year hybrid adjustable mortgages and the gap has widened since (Table J). In the first quarter of 2019, a 30-year fixed rate was at 4.37%. 30-year rates hit their lowest point in 2020 Q4 at 2.76%. As of November 2021, a 30-year fixed rate was at 3.07% and a 5/1-year hybrid adjustable rate was at 2.51. Inflation is expected to take the rates higher in this year.

The end of 2021 was shaping up to be a good start to returning the housing and furniture industries to a steady pattern of demand and growth. That is, if the many economic and social challenges, as well as other unforeseen Covid obstacles, don’t derail the process.

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