"Normal" Housing Market Doesn't Affect Spending

It is taking longer to sell a house, but consumers are still spending lots of money to furnish it.
By: Al Heavens: Realty Times
There is now little doubt that residential real estate market has slowed - or "normalized," as Realtors and economists like to say to compare it with the frenzy of the past few years.

Douglas Duncan, chief economist of the Mortgage Bankers Association of America, citing mortgage origination data for the last three years, recently said that 2006 would be more like 2003, which, in its time, was a record year.

So far, this "normalization" has increased the time houses in many areas are spending on the market, has begun reducing annual increases in home values to single digits from double ones, has new-home builders worrying about oversupply while culling investors from the condo market, and has lower-end buyers who bought with adjustable "exotic" loans scrambling to refinance before their monthly payments double as the Fed continues to increase short-term rates.

That's a mouthful, but that's the worst of what is happening generally around the country.

What it doesn't seem to be doing, or so my recent sojourns in Chicago and High Point, N.C., seem to bear out, is have much, if any, effect on the people who furnish these houses.

On the contrary, Dacor's chief operating officer, Michael Joseph, who has spent 34 years bringing his kitchen appliance company from one product to a highly competitive line of products, told me at the Kitchen and Bath Show in Chicago April 21 that sales were up 25 percent in the first quarter of 2006 over the same period of 2005.

Jim Baake, president of SubZero Wolfe, said that his Pittsburgh-based firm's first quarter was 25 percent to 30 percent better than January to March of 2005.

Studies by a number of data trackers repeatedly show that people who buy houses - new or existing - tend to spend an average of $6,000 the first year turning those houses into reflections of their personal lifestyles and tastes.

In addition, while long-term rates are now following short-terms to higher levels, upper-end buyers and a lot of those in the middle still find it relatively easy to buy higher priced appliances for their new houses, since financing those purchases over 30 years reduces the pain to monthly twinges.

The home furnishings market also has some immunity to the normalizing market, as my day at High Point last week with the National Association of Real Estate Editors indicated.

If the resource guide for the six-day show we were given is any gauge, 657 pages is a lot of furniture. Lighting takes up storefront after storefront on just one floor of the 11-story Showplace.

This is not Ikea. This is Hooker and Hamilton, and Bradington and Alexander Julien, who, in a luncheon speech to our group, referred to rugs as "sweaters for the floor." I let my wife look at the guide for a few minutes the morning after I flew home from Charlotte, and in just those few minutes, she found the new bed for my younger son's room.

There are stresses and strains in the furniture industry, just as in the housing industry and the appliance industry.

"The furniture industry is twice as large as the music industry, and is rapidly changing because of globalization," said Robert Maricich, president of Century Furniture Industries in Hickory, N.C.

"Because of globalization, furniture has never been a better value, but globalization has made furniture a commodity," he said. "The outgrowth of this trend toward commodity has been overcapacity," and that is something the industry will have to change to survive.

How will change come? According to Maricich, the three elements of change are innovation, creating an exceptional experience and speed.

In product development, the key driver is creativity, "which is driven by talented people with the courage to be different," he said.

The luxury market is driven by lifestyle. Suburbanites now want an urban experience, "and that requires us to edit furniture down to a smaller scale," he said. The suburban houses they are leaving "are not McMansions, but mansions, with a scale of furniture that is enormous."

The goal in both the appliance and furniture industries is to achieve an integrated look. The kitchen is not just a place to cook but a gathering space with many functions. Furniture has to be able to fit into every room, no matter that room's function, Maricich said.

"People want a wonderful home," he said. "A key element of luxury is aspirational. It is incumbent in us to put together that kind of environment."

The last two years have been fantastic for luxury markets, he said.

"Carmakers and others understand that what they are selling is not a product but an experience," according to Maricich. Instant gratification is a part of that experience, but "we in the furniture industry are continually frustrated because our work is filtered through a retailer or a designer."

"How many Lexises do you think would be sold if you had to wait eight or 10 months for them?" Maricich asked.