By Sean P. Boyle, director marketing and product management, LATICRETE International
There’s good news on the horizon for both the residential and non- residential sectors, which translates directly into upticks in the ceramic tile and stone flooring industry. In this article we provide a brief summary of the outlook of both markets and conclude with an estimate of tile consumption for 2014.
The residential market
The residential market plays a significant role in tile consumption, and is a key barometer to the overall economy. We all saw the impact housing had on the economy as it sparked the recession in 2008 – though it really began fading in 2006.
Housing starts – The good news is that all indicators are in agreement that housing is continuing to rebound from the historic lows witnessed in 2009 through 2011. Although projections are still well short of the approximate 1.7 million annual new single family housing starts seen in 2005, 2014 new single family housing starts are projected to exceed 830,000 units, an increase of more than 32% from the previous year according to the NAHB. Including multi-family, total combined new housing starts are forecast to increase roughly 25% versus 2013.
New housing starts play a significant role in the overall health of the economy due to the contribution to GDP and employment, plus they account for a large portion of tile and stone consumption. Helped by historically-low interest rates, a stable unemployment rate and a decrease in the inventory of unsold homes, confidence is high that the market will achieve the forecasted starts.
Remodeling – Remodeling is the other – and larger – side of the residential marketplace, and it has carried the segment over the past few years. Declining home values during the recession made many homeowners opt out of attempting to sell their homes to avoid losing money and instead chose to remodel. According to the Leading Indicator for Remodeling Activity issued by the Joint Center for Housing Studies of Harvard University, remodeling spending will remain strong through the first half of 2014 at a double-digit rate.
The same macroeconomic factors helping drive the growth in new housing starts play a significant role in remodeling. Rising home values as we have seen over the past 18 months – and low interest rates – allow homeowners to take out affordable home equity loans to remodel a kitchen or bathroom – thus driving demand across all aspects of construction – especially for new tile or stone flooring!
Overall, we forecast the residential market to account for approximately 60% of all tile consumption in the US in 2014 and will be the driver of growth for flooring. For dealers, distributors and professional installers the question of how your business aligns with this segment and the forecasted growth is one that should be examined to capture some of that share.
The commercial market
The encouraging outlook of the residential market is also shared in the commercial segment, which is forecast to experience moderate growth in 2014 of between 15-20% in terms of both volume and value over 2013. The continued improvement in the commercial segment is being fueled by the overall improvement in the economy, and specifically in commercial lending where there has been an easing of standards that allow for more of the much-needed financing for large projects.
The growth projection in the commercial segment is supported by a healthy rise in demand for commercial lending, according to McGraw Hill Construction – further proof and evidence that provides confidence of steady growth in this segment.
Looking within the commercial segment, however, there are some markets forecast to perform better than others. Hotel, office, retail stores and finally warehouses are those with the higher forecast gains in terms of new square footage, whereas those segments that are more dependent upon public funding, such as schools, public buildings and healthcare facilities etc., remain roughly flat to 2013 levels. And though all regions expected to show growth, Texas, New York, California, Virginia, Florida and Pennsylvania are expected to surge in terms of nonresidential construction.
In addition, green pays. The green share of commercial construction expected in 2014 is 45% – nearly half of all nonresidential projects. So products that contribute to LEED certification and the like will be important as we go forward.
All the crunching of numbers, analyzing segments, evaluating macro and micro- economic factors, etc., ultimately brings us to the impact on tile consumption – which is what we care most about! It is amazing to look back at 2006 and see consumption of around 3.3 billion square feet, whereas 2013 will end close to 2.7 billion. Based upon the above forecasted growth in each market, we can segment the ceramic industry accordingly, and calculate the respective share in square footage of each segment with an applicable growth percentage based upon the 2014 outlook. A conservative estimate for 2014 indicates tile consumption growth of between 6-10% to approximately 2.9 billion square feet – still making our way back to the good old days!
Of course, there are risks to the above estimates that are out of our collective control – activities in Washington, D.C., play a major role in the construction outlook. Interest rates, budget and monetary policy can instantly reverse forecasts. Add to that the complexity and impact to the U.S. of international markets, and you have quite a bit of data to interpret.
The bottom line is that all major institutions that track and forecast construction activity are projecting growth, and that consensus makes us confident that we have turned the corner and are looking forward to an exciting 2014.