Housing forecasts, Mohawk's SmartStrand Forever, Trends

By Kemp Harr

Every year in October the Dodge Construction Outlook report is published, making predictions for the coming year. It’s interesting reading, as it breaks down construction spending into all the vertical sectors. For 2015, the report calls for U.S. construction starts to increase 9% to $612 billion. There’s even better news as you dig deeper into the data, because the sectors that spend money on flooring are expected to expand the fastest. The prediction is that investments in single-family housing will increase 15%, multi-family housing will increase 9% and office buildings will increase 19%.

But before we dance in the streets, it’s worth mentioning that the same report published last year made the prediction that in 2014 we’d see a 9% expansion overall, and out of that, it predicted we’d see 26% growth in single-family housing, 11% growth in multi-family housing and 17% growth in commercial buildings. Now, with the year almost gone, we see that the reality for 2014 is closer to 5% overall, with only 4% coming from single-family-housing, 22% coming from multifamily housing and 14% coming from commercial buildings. That’s a pretty substantial miss, especially when you consider that more money is spent in single-family housing than in any of the other sectors.

The 2014 prediction was derailed when GDP shrank 2.1% in the first quarter, thanks in part to harsh winter weather (polar vortex) but primarily due to single-family housing stalling out. Since the downturn, the fundamentals for housing have stabilized, with a decrease in foreclosures (down 61% since 2010), an increase in home values (up 29% since 2012, with mortgage rates under 4%) and a stable inventory (five-month supply). 

One of the biggest factors in the sluggish housing market is tight mortgage lending. Banks are reluctant to lend money to borrowers with a credit score below 780. There are also a substantial number of homeowners who are forced to stay put because their loan-to-equity ratio is still upside down based on the timing of when they purchased their home. Demographics are also a factor. There are an increasing number of homeowners over the age of 65 who would like to downsize but can’t find buyers who can afford to step up to that price point. Since they don’t have to sell, the elderly are staying put. And as we’ve pointed out in this column before, many of the millennials are saddled with education debt and are content in a rental apartment at this stage of their lives.

Bob Murray, who publishes the Outlook report, says that there’s a remedy on the horizon for the tight mortgage issue. Fannie Mae, Freddie Mac and the lenders are close to a deal that will expand credit for residential mortgages. This will open up the market to consumers with lower credit scores or who don’t have the savings for a large down payment.

So, standing where we are in early December, it looks like 2015 is going to be an outstanding year, and Murray’s report supports this premise with the following predictions:

• GDP growth for the year will be 3.3%.
• Unemployment rate will remain below 6%.
• Inflation will remain stable as CPI increases at a subdued 2.1%.
• Access to home mortgages will expand and new single-family housing investment will grow 15%.
• Household formation has bottomed out at less than 600,000/year and will start to head back to a healthier pace.
• Three of the commercial vertical sectors will see double-digit growth in construction spending—retail up 11%, office up 19% and hospitality up 17%.
• Education will grow 9% and healthcare will grow 6%.

It’s important to point out that this Dodge report primarily focuses on new construction spending and only captures renovation/remodel work if the project exceeds $200,000. However, there’s a huge chunk of potential business in the residential replacement market or tenant improvement business that falls under that level. The two factors that have an impact on remodeling activity, especially in the residential sector, are disposable income and consumer sentiment, both of which have been on the rise in recent months. Disposable income is up due in part to the reduced price of gasoline and other energy related expenses, which are predicted to remain low beyond this decade. And the consumer sentiment index rose to a seven-year high in November with a reading of 89.4, a level the index has not reached since July 2007. 

CONSUMER SURVEY ARTICLE— DEFINITION OF HOME CENTER
If you read our Consumer Preference Survey in the November issue of Floor Focus magazine, you could easily have become alarmed by the pie charts toward the end of the article that showed that the home centers sell a substantial amount of flooring in comparison to the other types of retail flooring stores. In carpet, for example, our charts indicated that 31% of all the carpet sold at retail is sold through the home centers. In fact, Home Depot, Lowes and Menards only sell about 18% of the carpet sold at retail.

So, you may be asking, how did we get it wrong? There are actually two reasons why these numbers are skewed. The numbers we printed are exactly what the research told us, but when we asked the question, we didn’t sufficiently define what a home center was. And in the consumer’s mind, a home center can include Lumber Liquidators, Floor and Decor, Big Bob’s flooring outlet and a whole range of warehouse-type outlets with concrete floors. 

A second problem lies with who answered the questions. Instead of doing a mall intercept, which is done face to face in a shopping mall, we conducted this research using an Internet consumer panel. Not only does this method remove the human interviewer who can clarify any confusion about the questions—for example, “What’s a home center?”—but it also narrows the respondent pool to people who enjoy taking surveys via the Internet. Many research firms are debating whether the Internet method, which is less expensive, gives as broad a picture as a face-to-face interview conducted in a shopping mall. 

Avid readers of Floor Focus know that we spend a considerable amount of time doing research for our articles. We have reached the conclusion that it’s much easier to get accurate results in a B2B survey than a B2C survey. Professionals don’t mind talking about their field of work, and the sample base is more manageable.

MOHAWK LAUNCHES SMARTSTRAND FOREVER CLEAN
In the first week of this month, Mohawk will unveil the latest news about its SmartStrand carpet fiber with its most loyal retailers at its annual meeting. It’s been ten years since Mohawk first introduced SmartStrand, which is produced under an exclusive agreement with DuPont using its Sorona polymer. In that ten-year period, we’ve seen a validation from the Federal Trade Commission that triexta (also known as PTT) is indeed a separate polymer with its own unique properties. And in recent years, Mohawk has put an emphasis on Smartstrand’s stain resistance with creative promotions like Ricko the Rhino, License to Spill and the Puppy Bowl.

This year, as might be expected, Mohawk will kick off a new high profile promotional sponsorship, this time with Tough Mudder, to further promote the product’s cleanability, but the biggest news involves two technological developments that Mohawk claims enhance the carpet’s performance, both by adding more bulk and by improving its spill resistance. 

As you can see in the ad pages in this issue, Mohawk is introducing “SmartStrand Forever Clean: the toughest, easiest to clean carpet on the planet.” So now, all SmartStrand carpet fiber has been enhanced with Nanoloc technology, which “prevents dirt and spills from settling into the carpet.” This newly developed chemical treatment, which is added during the carpet manufacturing process, serves as a barrier against soiling and staining. In fact, Mohawk claims that vacuum cleaner tests using x-ray fluorescent technology (developed by NASA) has proven that dirt comes out of this Nanoloc treated carpet three times faster than ordinary carpet. 

A second enhancement to SmartStrand this year is increased bulk. Mohawk wouldn’t tell us how they accomplish this feat, but all new SmartStrand carpets have a bulkier hand (approximately 10% to 15% more bulk) without increasing the physical weight. This isn’t mentioned in its advertising because, unlike the Nanoloc treatment, which is a complete changeover to all new and existing styles, this increased bulk feature will only be available on the new styles.

Tough Mudder has recently become a world-wide phenomenon, testing the endurance of competitors who, in the spirit of teamwork and personal best, take on a course of ten to 12 miles filled with military-like obstacles including fire, ice, electric shock and, of course, lots and lots of mud. Since 2010, more than 1.3 million people have participated in more than 100 events around the world, raising $6.5 million for the Wounded Warrior Project. 

Mohawk will put SmartStrand Forever Clean through the ultimate torture test by installing pieces of the carpet on 14 of the Tough Mudder courses around the country, including the World’s Toughest Mudder in Las Vegas. Retailers will be invited to watch the challenges and see hundreds of mud-drenched competitors run, crawl and slide across Mohawk carpet. Afterward, the soiled carpet pieces will be cleaned and given to retailers for marketing purposes along with point of sale material and advertising that will tell the consumer how easy it is to keep this carpet clean.

TREND UNION FASHION TRENDS
Right before Thanksgiving, The Mohawk Group invited me, along with about 70 of their A&D friends from around the world, to attend the Trend Union fashion forecast for Summer 2016 at the Parsons The New School for Design in New York City. Our group, along with about 350 other design-oriented professionals and students, listened to Li Edelkoort talk about the socio-cultural trends that are driving the fashions we’ll see 20 months from now. Edelkoort, for those of you who aren’t hip about fashion, was named one of the 25 most influential people in fashion by Time magazine in 2003. Her Paris-based company, Trend Union, serves as a consultant for companies (cosmetics, interiors, cars, clothing) that want to know ahead of time which way the fashion trends are moving. 

Her first theme for summer 2016 is called Vanities—the mythology of self. This theme is motivated by the selfie movement brought about with the advent of the smartphone camera and social media. Vanity, as most people know, is excessive pride in one’s self. She goes on to tie this movement to thin wispy clothes that drape and tend to be revealing.

I won’t take you through the entire two-hour presentation, but here are a few fashion sound bites to take note of. Shirting is becoming more important; padded bras are passé; prodigy and infantilism themes will become more visible; craft and handiwork are becoming more prominent; sandals and sculpted hair will be more in vogue; archery and boxing will become popular sports with women as participants; greens and blues will be key colors; and layering of fabrics will become more common.

If you have any comments about this month’s column, you can email me at kemp@floorfocus.com.

Related Topics:Lumber Liquidators, Mohawk Industries, RD Weis