Tampa, FL, June 23--The dollar estimate of home improvement product sales for 2005 was revised upward by a total of $5.7 billion to a new record high level of $286.5 billion, representing an increase of 5.8% vs. 2004, according to a Home Improvement Research Institute (HIRI) forecast report prepared by Global Insight.
Just seven months prior in their November 2004 forecast update, Global Insight was forecasting sales of $280.9 billion for the calendar year 2005. The consumer portion of this market that includes DIY as well as BIY currently accounts for nearly three-fourths of the total and is expected to just slightly outpace the Professional portion in growth over 2004 (5.9% vs. 5.3%).
The forecast for 2009 was also adjusted upward and is now projected at a level of $342.8 billion in product sales. This is $13.7 billion higher than had been previously forecasted for 2009 in the November 2004 forecast update.
High oil prices have begun to create a drag on the economy, but Global Insight (GI) expects growth to stabilize as the higher oil prices are absorbed. GDP growth of 3.4% is expected in 2005, before slowing to 2.9% in 2006 as consumer spending and the housing market lose steam.
Inflation is back as a concern for the Federal Reserve. The global expansion has sent commodity prices sharply higher, and productivity growth has slackened, raising unit labor costs. However, there are now signs that commodity prices are stabilizing, and GI expects core CPI inflation to hold at a pace near 2.5% over the next two years.
While the inflation evidence is not bad enough to warrant an acceleration of rate hikes, neither does GI believe that the slowdown in growth will be severe enough to make the Fed pause any time soon. It is believed that the Fed will want to move toward a 2.0% real funds rate, and GI expects the funds rate to reach 4.0% by the end of 2005 and 4.5% by early 2008.
The recent strong evidence on home sales has led GI to raise its forecast of housing starts to more than 2 million units for 2005, with existing home sales holding near the 6.7 million pace of 2004. This should prove to be the peak for the cycle. As rising interest rates slow activity, both indicators will turn down in 2006 - existing home sales down 5.3% and starts down to 1.8 million.
The strong housing market and additional spending stimulated by a severe hurricane season yielded record growth of home improvement product sales in 2004. Total home improvement product sales reached $270.9 billion - up 12.6%. This was the highest growth rate recorded since 1984.
Both the Consumer and Professional Markets showed strong growth in 2004. Retail sales of Building Materials and Supplies Dealers were up over 15% - pushing Consumer Market sales to a 12.8% increase for the year. Professional Market sales were ahead 11.9% - stimulated by repairs and rebuilding in the aftermath of four hurricanes.
With the continuing strength of housing market activity, the GI forecast for home improvement product sales in 2005 has been revised upward. They now expect gains of 5.3% in Consumer Market sales and 5.9% in the Professional Market - well below 2004's expected record performance, but still healthy growth in a slowing economy.
The long-term outlook for the home improvement products market remains strong. Total market growth in 2006-2009 is projected to average 3.4% per year in constant dollars.
