CMM Q3 2017
Sales of Household goods are soaring, despite housing shortage.
Dublin, November 9,2017: Spending on household goods of all kinds is booming, despite the shortage of housing, rising rent etc. Spending on this category has been growing in double digits for the last four years, and is up by 12.7% in real terms for this year, to the end of September. All the signs are positive for continuing growth—a growing population, increasing employment, and rising incomes, and the drop in the value of Sterling is enhancing buying power in this sector, as well as many others. Consumer spending in this sector, along with investment in construction, are among the main contributors to economic growth right now.
These are the key findings of the latest Consumer Market Monitor (CMM), published today by the UCD Michael Smurfit Graduate Business School and the Marketing Institute. Data from the Q3 2017 Monitor indicate that Irish consumers seem are spending on many types of goods and services, but especially every kind of household goods. “The strength of demand is most evident in the housing market where mortgage approvals increased by 41% in H1, and the number of homes purchased was up by 8%, despite a shortage of supply. All types of household goods are all growing very strongly” according to Professor Mary Lambkin, author of the report.
Sales of household equipment have been growing rapidly since 2014, and have been the highest growth sector of retailing for several years. As the chart below shows, the volume of retail sales, which represents real growth, has grown very rapidly over the last four years, and is now well ahead of the last peak in 2007. In contrast, the value of sales is still 27% below the peak level, suggesting that prices are still significantly lower than they were in the last boom.
Some of this pick up is driven by new homes, with purchasers having to equip them from scratch with all of the items needed for daily living. The lowest point was in 2013 when only 8,300 new homes were connected, but this has increased each year since, with 14,932 new homes connected in 2016, all of which would have required equipment and furnishings to make them habitable. On the basis of information to the end of September, it looks like the number for this year will be about 15,450 in total, which is only a 3% increase on last year, but still represents a lot of homes needing furnishing.
Residential property is the sector under most pressure, as is well known. There were 45,342 homes sold in 2016 which was 4% lower than the 47,313 sold in 2015, partly driven by a shortage of supply. Despite the tight market, residential sales are up 10% in 2017; there have been 33,096 sales up to the end of September, suggesting a total of 50,000 for the full year. Mortgage approvals were also up by 34% in the first nine months of 2017, for a total of 24,102, indicative of the strength of demand in the market
The Home Renovation Incentive (HRI) scheme has also stimulated a lot of spending on household goods, as well as being a considerable support for the building trades and related retail sectors. There have been 101,232 projects completed under this scheme since its introduction in October 2013, with a gross spending value of €1.6 billion. 10,655 building contractors have been involved in these projects and, given a multiplier of 2-3 for the number of trades contributing to these projects, that may have supported as many as 30,000 jobs.
Types Of Household Equipment
Household equipment is actually the sum of three categories of household goods: furniture and lighting; hardware, paints and glass; and electrical goods. While all three categories are now experiencing growth, the level of growth has varied considerably. Electrical goods recovered fastest from the recession and are now 42% higher in volume than at the last peak in 2007. Furniture and lighting comes next; it has been slower to recover but is now growing at the fastest rate, up 16% for the year to the end of September. It is now back to a level slightly above the last peak.
The weakest category, relatively speaking, is hardware, paints and glass. This category is most closely tied to construction, which probably explains why it has been slowest to recover, and is still 14% below the last peak. However, it has picked up noticeably this year, up by 9% in volume terms for the year to the end of September.
The future looks very positive for all these retail sectors, since there is still a very large housing demand relative to supply. With housing demand of at least 30,000 units per annum, it will take a number of years for supply to catch up. The evidence suggests that construction activity is picking up. A range of indicators, planning permissions, commencements and the Construction Purchasing Managers Index, point to a rapidly expanding sector, albeit off a low base.
The number of residential property sales is also picking up, despite the tight supply. There have been 33,096 sales up to the end of September, up 10%; suggesting a total of 50,000 for the full year. Mortgage approvals were also up by 34% in the first nine months of 2017, for a total of 24,102, indicative of the strength of demand in the market.
Every house purchase, whether new or second hand, provokes some spending on household goods, everything from paint and paper, to furniture and fittings. Lending for house purchase, and top-up loans for home renovations is also growing fast. Mortgage approvals for home purchase were up by 34% in the first nine months of 2017, for a total of 24,102, and top-up mortgages were up by 52% suggesting more spending under the home renovation scheme.
All in all, the market for household goods looks to be in for a positive future, with considerable upside potential.
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