Strong Rebound: Residential Construction Sees Bright Days Ahead
by Les Shaver

Things didn’t go well for the residential construction business in 2006. Most of this year doesn’t look too much better. Things could start to look up by the fourth quarter. But, what about 2008 and beyond? The convergence of rising demand from both baby boomers and developing countries along with heightened consumer demand for green products could create big opportunities for door and window manufacturers.

That’s the word from Harvey Bernstein, vice president of industry analytics, alliances and strategic initiatives at McGraw Hill. Bernstein shared that prediction as part of wide ranging talk at the Window and Door Manufacturers 80th Annual Meeting on Big Island, Hawaii.

While Bernstein mixed in liberal doses of humor throughout his presentation, the residential decline last year (11 percent) and the projected falloff this year (7 percent) were no laughing matter. Overall, construction fell 2 percent. “This year will be tough, but not anything like last year,” he said. “We’re projecting things could go up in 2008. The question is really if the shift will be in the final quarter of 2007 or the first quarter of 2008.”

Even in a residential downturn, construction plays a large role in the global economy with the United States being the biggest player. The building industry constituted $4.2 trillion globally in 2005. The U.S. contributes $1.3 billion to that amount, which makes it the biggest country (construction is the second biggest sector in the U.S. and contributes 8 percent of the domestic gross domestic product). It’s no longer the largest regional market though. That distinction belongs to Europe, which spends $1.5 billion on construction. 

Europe and the United States aren’t the only areas experiencing heavy construction, according to Bernstein. With increasing urbanization, longer life spans and growth in communication and transportation, there will be more demand for housing in developing nations. And the increasingly sophisticated workforces in these countries won’t want the same old dilapidated housing. They’ll crave something more comfortable and modern.

That opens many new markets for products manufacturers. “If you’re not focused on the global marketplace, you’re behind,” Bernstein said.

But there’s a flipside, as well. More foreign firms, which can often produce products at cheaper prices, are eyeing the U.S market. They’re underbidding for construction work and buying American firms. Chinese companies are especially aggressive. This means American manufacturers must gear up or fall behind.

Different Preferences
As other countries grow more sophisticated, the United States grows older and more diverse. Those two trends have wide ranging implications all across the residential construction sector, specifically in the remodeling sector.

By 2030, Bernstein projects that the elderly population in the United States will increase faster than the total population. From 2005 to 2015, the 60-to 69-year-old age group will total 6.9 million, while the 70- to 79-year-old demographic will be at 3.0 million. These people will be seeking both seniors housing and second homes. 

“Understanding what this population wants [in home choice] is important,” Bernstein said. “What kinds of features are they looking for?”

Seniors won’t just be looking for new housing though. They’ll want to remodel their existing residences. Bernstein said the 50-and-older crowd annually spends an average of $350 more on remodeling than those under 50.

Hispanics, which make up almost half of America’s newest residents, also spend a lot of money on home improvement. In fact, they make the most total improvement expenditures of any group.

The remodeling sector is already vibrant, growing from $153 billion in 1995 to $280 billion in 2005. As new construction tailed off over the past year, remodeling remained fairly healthy, with additions, alterations and kitchen and bath upgrades leading the way. Bernstein expects the country’s aging housing stock, rising land prices, burgeoning energy costs and high homeowner equity levels to continue to feed this growing market. That creates plenty of opportunities for door and window manufacturers.

Green Scene
Just as the remodeling market has grown over the years, Bernstein said green building also made solid gains. Builders have bought in because they see building energy-efficient products as the right thing to do and it can offer savings on energy costs. He said they seem to have a good grasp of the green products on the market (including products from window manufacturers). The only thing scaring some builders about green products: higher perceived costs.

But Bernstein sees some of these price concerns fading away in 2007. In fact, he expects the majority of builders to make a move to be green in some way this year. Over the past year, Bernstein said there’s been a 20 percent increase in builders dedicated to green issues. He expects another 30 percent increase in 2007.In dollar figures, green building also shows strength. In 2005, 2 percent of building starts and roughly $10 billion were green. In 2010, up to 10 percent of building starts or almost $60 billion, will be green.

While building materials, preservation of open space and air filtration are key components of green building, energy efficiency plays a huge role. Windows remain a vital cog in that equation. Eighty-two percent of builders say they use low-E glass in construction. Bernstein said that while builders see high efficiency HVAC as the most important energy efficient option though, low-E windows come in second. 

What the Consumer Wants
It doesn’t seem to matter whether consumers are diehard environmentalists or just looking to save a buck. When it comes to buying a window, it’s become apparent that conservation is paramount.

More than 50 percent of windows purchased in McGraw-Hill’s Construction Annual Homebuilder and Homeowner Surveys were to improve energy efficiency (McGraw Hill’s Harvey Bernstein reported on this survey to WDMA members). Exactly, one-third of windows were bought to replace broken or worn out glazing. After that, issues like improving appearance, easier operation and the reduction or elimination of maintenance prompted the purchase of new windows.

With names like Pella and Andersen, it’s little surprise the McGraw Hill survey found that 58 percent of respondents know window brands. Of those who had preferences, Andersen came in first at 12 percent and Pella followed at 10 percent. Crestline and CertainTeed were each recognized by three percent of respondents.

Eighty-two percent of all exterior door purchasers and 71 percent of patio door buyers chose new exterior and patio doors to replace existing ones. With patio doors, 14 percent of respondents made purchases because they were going through a remodeling or adding a room. Eleven percent of all exterior door buyers, made their purchase to install a new addition, while five percent wanted to install a new opening in an existing door or garage.

As far as door component trends, fiberglass is now in about 750,000 new starts, which moved it past wood doors (more than 500,000) into second. Steel doors remain the market leader though. They’re in almost 2 million new homes.

Putting the new and replacement markets together, steel doors still outpace the other two materials combined, selling almost 18 million. Wood follows second at 6 million and fiberglass comes in third at less than 2 million.

Les Shaver is a contributing writer for DWM magazine. 

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