When Housing Starts to Fall,
What Happens to Door and Window Manufacturers?
by Sarah Batcheler
Newton’s Third Law of Motion states “For every action, there is an equal and opposite reaction.” So, what reaction to the housing market decline have door and window manufacturers felt during the last six months?
The Commerce Department says sales of new homes in September fell shy of expectations. Median prices declined 5.7 percent, and the number of new homes for sale jumped up to a record 493,000.
Company leaders tell DWM magazine what their companies have felt due to these changes.
Companies that feel the biggest impact from the housing market are those that work primarily in new construction. The impact doesn’t appear to be drastic for most companies.
“It’s affecting us, but not as greatly as other manufacturers. We are blessed to be in Lafayette, La., which is two hours away from where Hurricane Rita hit and three hours from where Hurricane Katrina hit, so we are pretty covered with that [rebuilding],” says Jeff Gasaway, vice president of sales at Mayfair Window and Door Co. in Lafayette, La.
“Additionally, we are the only Louisiana-based residential window manufacturer.”
“We are way, way up for the year, so the housing market hasn’t had a huge affect on us. Our new construction business is down approximately 12 percent, but the replacement business is up, definitely,” says Gasaway.
“The downturn in the housing market has had a modest impact on only a small portion of our business,” says Stacy Olson, marketing communications supervisor at Kolbe and Kolbe Millwork Co. Inc. of Wausau, Wis.
Hurd Windows and Doors of Medford, Wis., has been hit drastically and has cut 109 jobs since early December. The company cited the decline in the housing market as one of its primary reasons for this cut.
“There is no denying that our company’s wagon is directly hitched to the performance of the U.S. housing industry,” said general manager, Dominic Truniger. “When less building permits are issued, on top of a decline in building starts, it can only translate to one economic factor … less demand.”
“Through the third quarter housing starts are down nationwide approximately 10 percent,” says Scott Klieforth, fenestration market analyst for Hurd Windows and Doors. “Obviously this has an effect on companies that focus their business on new construction,” says Klieforth.
Other door and window companies have been able to capitalize on the manufacture of other building materials.
“[we’ve noticed a decline in the housing market to an extent], but our moulding business is booming. We’re located in Arkansas, close to Hot Springs, which is booming,” says Bristol Martin, sales coordinator of Primeline Inc.
A representative from a leading window company in the United States says, “Like everyone else, we are carefully watching the market and what the ‘experts’ are saying. There have been some mixed messages recently so we continue to monitor and evaluate,” says the company representative who preferred to remain anonymous. “We certainly acknowledge that a correction is happening …”
For some companies, the housing market had a significant, but short-lived impact.
“We ship nationwide. In August we saw a real softening and our orders slowed. Then, in early September it was light and not as bad as August. Right now, we’re having a hard time keeping up the orders [because the business is so good],” says J. Paul Cunningham, president of Phoenix Door Manufacturing Co. of Henderson, Nev., who adds that his company is in the high-end home market and everything it does is custom built to order. “High-end has always continued pretty well.”
Location, Location, Location
The impact it has on door and window manufacturers varies greatly depending on what and where a company’s market is.
At the end of October, the National Association of Home Builders (NAHB) reported that two of four regions across the country posted increases in the pace of new homes sales in September. Sales were up in the South by 6.9 percent and in the West by 23.9 percent. The sales rate was down by 34.5 percent in the Northeast and by 6.3 percent in the Midwest for the month. All four regions reported a substantially lower sale rate than a year ago.
“Maybe we’ve been affected to a minor extent in certain markets. But overall, our sales are up quite nicely,” says Cunningham. “Maybe the sales have gone down 10 percent in one market, but up 12 percent in another,” he adds. “For instance, the Midwest is starting to pick up because it had dropped off. In New York and New Jersey, we’re seeing a definite increase. In northern California, the sales have dropped but in southern California it has increased. We’re also picking up market share here [in the Las Vegas area],” says Cunningham.
Because of their location close to Hot Springs—an area where a lot of people are building condos and townhouses—Primeline hasn’t been hurt by the decline in new home construction.
“We’re lucky,” says Martin.
“Another area of strong growth market for us is that we’re starting to do some work on hotels because we’re closely located,” says Cunningham, who explains that lots of establishments in the hotel industry are remodeling.
“When 9/11 hit, the hotel industry was ready to start remodeling. So, they sat for a while and now the hotel business is booming. They’re all remodeling,” says Cunningham, who predicts that approximately 85 percent of his company’s products goes into residential, while the rest is for the commercial sector.
Door and window manufacturers try to make sense of the housing market.
“[The housing market] experienced a huge boom and, as a result, the market was artificially inflated. Builders were selling houses before they were even built. Most investors can’t make money by doing nothing. They might buy a house and sit on it for a while or fix it up, but when [the word got out] they could do that, a lot of people got into it. This really spiraled into an artificial demand,” says Gasaway.
He also says the real estate market has compounded the problem.
“The real estate market has taught buyers not to worry about a down payment and to buy something that you can just barely afford. The loose lending market has caused artificial depreciation as well,” says Gasaway. “The theory of going to buy a house that you can hardly afford is great for builders, but in the end, it hurts. It’s dangerous,” he adds.
Many companies report that they have made a change or shift in part of their company’s business to offset the changes happening in the housing market.
“We are developing new products that will allow us to enter sectors of the door and window business that our current products did not fit into. We’ll be announcing a new product family in 2007 that will be positioned with other builder-grade wood door and window products to continue building on the depth and breadth of the Hurd product offering,” says Klieforth.
Olson says that they are not changing any part of Kolbe and Kolbe’s marketing strategy because they were able to plan ahead.
“Looking forward about two years ago, we had projected that some of these market changes would be taking place,” she says.
Martin says that her company is not changing any way they do business, but it is offering more products to give customers a better variety.
Looking at the hot spots in the country and those markets that are growing is what Hurd is doing.
“We are focusing a lot of our attention on markets with the greatest potential for growth,” says Klieforth. “We are not losing sight of all sectors of the country, and we continue to develop new products to help gain market share nationwide and worldwide, but regions with the greatest growth potential will be a focal point,” he adds.
Cunningham, who says that the Las Vegas market is hot right now, is capitalizing on that opportunity.
“In Vegas, we’ve started marketing to high-rise, high-end developments out here. One of the things we’re doing, and this isn’t really our niche, is a new MDF door that’s at budget price point, he says. “There is a router-carved door that we’re reintroducing at a lower price point which is tailoring to high-end mid-range door or low-upper range door, he adds.
Along with the housing market, which is linked to higher energy prices, manufacturers are still dealing with gas prices. In early November, the price of a barrel of oil fell to below $60 a barrel.
“Fuel prices have cooled over the last couple months. However, nobody knows what the long term future is for fuel prices. It’s a very important x-factor in our margins and in our business,” says Klieforth.
“Fuel costs will never be as low as they have been in the past. Because of this, companies must work hard to find ways to upgrade their facilities and processes to conserve fuel which directly flows down to the cost of the product,” says Olson.
What is certain is that gas prices directly affect everyone.
“Fuel prices have driven the cost of everything we ship and buy, says Cunningham. “It’s been tough because imports make margins thin … The fuel costs have squeezed margins,” he adds.
The gas prices are a serious challenge for those who ship large distances.
“They [the gas prices] are ridiculously high. I don’t know why the price of diesel hasn’t come down. It makes no sense,” remarks Gasaway. “It’s difficult because, even though we are a regional manufacturer, we ship from Texas to Florida. The freight costs affect us significantly,” he adds.
Fuel prices, once a problem for Primeline Inc., has settled enough for them to drop the fuel surcharge it had to implement earlier this year.
“We were able to stop implementing the surcharge, because we aren’t really having problems with that,” says Martin.
What’s Next for 2007?
While experts predict continued softening in 2007 (see article on page 28), manufacturers remain optimistic.
“Recently, builders with pre-built homes have dropped prices approximately 10 percent in an effort to move these houses and it’s starting to pay off. If we can gain some confidence in the economy, and if interest rates drop as expected, I think we could see stronger housing starts in 2007,” says Klieforth. “I think 2007 will be a breakout year for Hurd Windows and Doors,” he adds.
Cunningham says that the high-end residential market is pretty stable. “For our niche, we’re going to continue to see growth unless the interest rates drop significantly,” he adds. Our key markets are large luxury homes and condos—which both are seeing growth,” says Cunningham.
Some like Gasaway take a realistic approach to the future.
Next year’s housing market is going to be pretty flat, like this year,” predicts
Sarah Batcheler is an assistant editor for DWM magazine.
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