What goes up must come down, and the growth of the single-family housing market in the United States is no exception. Processors serving the construction market are taking that in stride overall, but four dirty little words remain: ``rising raw material costs,'' and the lesson seems to be that what goes up continues to rise.
First, about that housing market. Economists agree that the largest barometer of construction industry health will slow through 2005, settling back from its record high in 2004. That is due largely to moderately higher mortgage rates and reduced first-time home-buyer demand in some overpriced markets, according to McGraw-Hill Construction of New York. The group also forecasts a 3 percent drop in dollar volume, meaning a 7 percent decline in the number of dwelling units to 1.4 million.
Officials from McGraw-Hill said economic expansion will decelerate to about 3.5 percent, and the Federal Reserve will continue to tighten monetary policy in measured steps, moving the federal funds rate above 3 percent by the second half of 2005.
The construction industry will vary by sector in 2005, McGraw-Hill officials said. The single-family housing sector will lose momentum, and officials anticipate growth from commercial building, multifamily housing and institutional building. Under McGraw Hill's forecast, total construction in 2005 will climb 2 percent to $586 billion.
According to the National Association of Home Builders in Washington, the remodeling market had a strong 2004, and 2005 will mean more of the same. Its Remodeling Market Index, based on a quarterly national survey of 500 remodelers, was above 50 for the last two quarters of 2004.
``With ongoing favorable interest rates, rising employment and household incomes, and high home price appreciation rates, we expect the remodeling market to remain on a strong growth path,'' said David Seiders, NAHB's chief economist, in a Dec. 9 news release.
Now, what about the processors? The profile extrusion market will continue to struggle from overcapacity, according to some officials.
``It's caused a very competitive landscape,'' said Herb Hutchison, president of Crane Plastics Manufacturing Ltd. in Columbus, Ohio.
The company's own consolidation, announced in December, was the result of rising raw material costs and overall economic conditions.
The market conditions mean that sister company Crane Performance Siding has been focused on building efficiency for vinyl siding extrusion, said President Jim Ziminski. Two plants in Columbus have been the focus of machinery upgrades.
Moreover, insulated vinyl siding is becoming a key option among communities where vinyl siding had been banned.
``We're seeing more people who would not buy traditional vinyl siding buy Craneboard,'' Ziminski said in a Dec. 8 interview in Columbus. At a starter-home project in New Albany, Ohio, Craneboard was selected even though vinyl siding had been banned in the community.
Like vinyl siding, PVC piping has been seeking broader acceptance in markets dominated by other materials. Manufacturers celebrated a victory in December when New York Gov. George Pataki vetoed a bill that would have further restricted PVC pipe in commercial construction and residential applications.
``We've seen 2004 as a period of catching up with construction projects that have been displaced as a result of the economy in earlier years,'' said David Culbertson, president of National Pipe & Plastics Inc. in Vestal, N.Y.
``In 2005, we expect to see more of the same.''
The industry continues to gain market share against metal piping systems, Culbertson said.
For Vanguard Piping Systems Inc. of McPherson, Kan., 2005 means capacity additions at its headquarters site. ``We believe 2005 will be a growth year for PEX in the site-built housing market,'' President John Fraser wrote in a Dec. 10 e-mail.
``NAHB and others have projected a softening of the site-built market in 2005, but we're still projecting double-digit growth in our PEX plumbing and hydronic systems sales during that period.''
Vanguard in late 2004 added capacity to its site in McPherson with a 30,000-square-foot addition.
``We have committed to additional capacity in 2005,'' Fraser said. ``We're optimistic. We're betting on growth.''
Fraser said that one of the most significant challenges is to maintain price stability in the face of increasing raw material costs.
The company announced increases to cover price hikes on PE3408 and PEX raw materials, but hopes to see prices ease this spring.