The housing market will start to cool in 2005, according to economists at the International Builders' Show, held Jan. 13-16 in Orlando.
Economic growth will strengthen in 2005, said Frank Nothaft, chief economist with Freddie Mac. GDP growth should be 3.8-4 percent during the year, and unemployment will decline slowly to 5.1 percent by the fourth quarter.
According to David Berson, vice president and chief economist with Fannie Mae, the Federal Reserve Board will continue to tighten its monetary policy; housing demand will fall modestly, with a sharper downturn in home price gains. Record housing demand, fueled in part by a substantial rise in investor purchases, and increasing constraints on new supply have pushed home price inflation to unsustainable rates during the past few years.
Berson said business spending continues to accelerate, with both fixed and inventory investment spending up.
``With core retail sales stable and a lower level of the dollar helping U.S. firms compete internationally, production should continue to expand in 2005,'' Berson wrote in a Jan. 13 report. ``Employment gains are strengthening and this should cause income growth to accelerate, offsetting the negative impact of higher interest rates on consumer spending.''
Berson projected a decline in new-home sales of almost 9 percent, down to 1.09 million units, tying the figure of 2003, and an 8 percent drop in existing sales to 6.05 million units, which would make it the third-strongest year on record. Mortgage rates will move higher in 2006, further affecting sales, he said.
In plastics building products, companies are showing the willingness to loosen the proverbial purse strings, both in terms of acquisitions and manufacturing expansion.
The industry should expect 2005 to be active for mergers and acquisitions, according to Principia Partners of Exton, Pa. Financial buyout firms have been particularly active in the past two years.
``While we see that taking place again in 2005, we're also expecting more corporate buyer activity,'' Principia consultant Lou Rossi said in a Jan. 25 telephone interview. ``More money is in their coffers to spend on acquisitions.''
Rossi said there has been a wider acceptance of plastics in building products. According to his firm's upcoming report, ``Investment Opportunities in Plastic Building Products 2005,'' plastic building products have experienced strong double-digit growth, higher than traditional building products.
Although decking, fencing and railing continue to be hot markets, Rossi said exterior trim is the hottest right now.