By Bill Sendelback
New-home construction in the U.S. is improving, slowly, but it still has a long way to go to reach levels of a decade ago. The modest increases that have been forecast for 2020, if met, will continue on that slow pace.
The National Association of Home Builders (NAHB), in early November, estimated total housing starts at 1,238,000, up only 1% from 2018 levels. The NAHB forecasted total starts in 2020 at 1,258,000, up only 1.6% over 2019.
Single-family housing starts for 2019 were estimated by the NAHB at 854,000, while forecasting 2020 starts at 873,000, up only 2.2%, but still a far cry from the 2006 record of 1,654,000 single-family starts.
The NAHB estimates 2019 multifamily starts at 383,000, and forecasts 2020 starts at 385,000, an increase of only 0.5%.
Factors that might improve these forecasts include the NAHB-predicted unemployment rate in 2020 dropping to 3.5%, a 50-year low, and mortgage interest rates dropping from 3.92% in 2019 down to 3.88% in 2020. Fannie Mae forecasts 2020 mortgage interest rates at 3.7%.
Along with continued slow growth in U.S. housing starts, the hearth products industry has two major challenges facing hearth products as it relates to new homes – a declining incidents rate of fireplaces included in new homes, and the increasing number of proposed and finalized bans on natural gas being used in new homes.
The U.S. Census Bureau reported that, in 2018, 56% of new, single-family homes did not include a fireplace. The percentage of new homes without a fireplace has steadily increased since 1990, when only 34% of new homes were without a fireplace, a change of 65% since 1990.
In a story titled “What Home Buyers Really Want” in the November issue of Builder magazine, a fireplace was not even on that “want” list. This declining fireplace incident rate has drawn the attention of the fireplace industry and of the Hearth, Patio & Barbecue Association (HPBA). In reaction, the HPBA recently hosted a gathering of fireplace manufacturers to discuss what can be done to stem that tide.
“Sure, we’re concerned about the dropping incident rate, but the numbers may not tell the whole story,” said Roger Oxford, senior vice president of Strategic Accounts for Hearth & Home Technologies (HHT). “A greater percent of today’s new homes are being built in housing markets that historically have had low fireplace incident rates, such as Florida and Arizona. It’s not that fewer homebuyers are choosing a fireplace. It’s also that more lower-priced homes are presently being built without a fireplace to keep the price down. We, as an industry, need to make sure that homebuilders recognize a fireplace as a value, a feature that helps them sell more homes faster.”
Oxford also points out that more attached homes are being built. “I’m not talking about multifamily units. I’m talking about common wall, single-family homes such as townhouses. In these units, builders are finding it more difficult to find a place for a fireplace, given the constraints on venting. But fireplace incident rates in multifamily units are also dropping.”
“Homebuilders are worried and don’t know what to do about current regulatory challenges such as natural gas bans, possible efficiency standards on gas models, and required ignition systems on gas fireplaces,” according to Dave Ivey, National Sales manager for Kingsman Fireplaces, “so some simply have elected not to include or offer fireplaces.”
“In some areas, such as California and the Sun Belt, fewer homebuyers are requesting a fireplace because they don’t want, nor need, the heat from a direct-vent gas fireplace now being prescribed in many areas,” says Bill Harris, managing partner of Mason-Lite.
Another major challenge for homebuilders and the hearth products industry is the rapidly increasing number of municipalities considering, or finalizing, bans on natural gas in new-home construction. California has been the leader of these bans, but they have expanded to Seattle, Vancouver, and even to Brookline, Massachusetts.
In mid-December, the California Energy Commission cleared the way for six local governments to limit the use of natural gas in many new buildings, including new houses. The action, which took effect on Jan. 1, 2020, is designed to encourage all-electric homes.
Berkeley, California, was the first city in the U.S. to pass such a ban, and now more than 20 California municipalities are considering similar bans, according to the San Francisco Chronicle newspaper. In ordinances where some natural gas usage is allowed, those homes or buildings that may use some national gas are required to meet higher efficiency standards that, obviously, will increase building costs.
The U.S. Energy Information Administration (EIA) says that “new homes are more likely to be all electric.” It reports that 25% of all U.S. homes, including 18% of single-family homes, are now all-electric, particularly in the Midwest and the South.
“Builders are putting up more all-electric homes in reaction to these proposed and real bans,” says Oxford, “so as an industry, we better embrace electric fireplaces if we want to keep a fireplace in tomorrow’s home. But we need to make them look better to differentiate them from the cheaper offerings at mass merchants.”
North America is not alone in the challenges of bans on natural gas. In the UK, its Committee on Climate Change has said that no new UK homes should be connected to the gas grid beginning in 2025.
New-home construction activity in 2019 was not as strong as predicted, according to HHT’s Roger Oxford. “This slowdown was driven by an early increase in mortgage interest rates, and the increasing prices of new homes, plus consumer uncertainty as to whether we were headed for a recession.”
Oxford believes there will be a return to growth in new-home construction in 2020. “How strong will that growth be? That’s the question, and nobody knows,” he says. “We’ll not get back to the record number of housing starts of years ago, but I see growth in low single-digits, with some predicting starts to be up 11%. There still is high demand for new-home purchases. Consumer traffic with builders is back, mortgage interest rates should be less than 4%, and U.S. consumers feel more secure with our economy. So we’re optimistic about 2020.”
Oxford also is optimistic about the future of fireplaces in new-home construction. “Homebuilders are looking for ways to differentiate themselves in their markets, and offering quality fireplaces is one way to do that. But we as an industry need to be proactive with homebuilders, to give them knowledge about our products and to convince them that adding a fireplace is not a cost but a positive way to help them sell more houses.”
Heat management with today’s gas fireplaces is a very important feature, says Oxford. “That allows unwanted heat to be vented to another room or outside. Homebuyers in warmer climates want the ambiance of a fire, but may not need or want the heat. Today, more customers want to place a TV above the fireplace.”
Oxford also points out that, with the increasing bans on using natural gas in new-home construction, electric fireplaces are becoming more important to homebuilders as a replacement for wood- or gas-burning models.
TruFlame 40 model by Empire Comfort Systems.
“Our dealers have been busy with homebuilders, busier than in the recent past, but not as busy as in past years,” according to Nick Bauer, president of Empire Comfort Systems. “For 2020, the indicators are positive, so we are cautiously optimistic about new-home construction sales. Even so, we expect a flat sales year to homebuilders, maybe up 2% or 3%. With home mortgage rates expected to be less than 4%, we hope it will be a normal year.”
Most of Empire Comfort’s builder business is to custom homebuilders, and Bauer sees the trend in custom homes going toward larger homes, somewhat the opposite from that of tract homes. “We’re selling more higher-end fireplaces with more features and bigger flames, maybe requiring a heat-dump feature. These homebuyers want to customize their fireplaces.”
New from Empire Comfort for the new-home market is its TruFlame 40, a high-end, 40-inch wide see-through gas fireplace that can be installed as an indoor and outdoor model, allowing the flames to be viewed both indoors and outdoors.
Innovative Hearth Products (IHP) sees new-home construction continuing to grow in 2020, but like many manufacturers, IHP is concerned about the falling incident rate of fireplaces in new homes.
“We’re not counting on that incident rate increasing overall,” says Michael Lewis, vice president of Marketing, “not in tract homes, but we will see it increase in custom homes. Homeowners still want a fire. Unfortunately, prices for new homes will be flat and builders will be trying to protect their profit margins, so fireplaces will suffer as one of the easiest items to remove from a new home in order to hold down prices and help margins.”
Compass Series from Innovative Hearth Products.
Lewis points out that, with increasing new environmental regulations such as Net Zero in California, homebuilders have to spend extra money to meet those demands. “We would like to see a fireplace become like stainless-steel appliances and granite countertops,” says Lewis, “features that consumers want and builders see as a selling point.”
Like most manufacturers, IHP is noticing an increasing trend toward contemporary, linear styling, and expects that trend to continue. “In the past five years we’ve seen increased sales of outdoor fireplaces in new-home construction,” says Lewis. “That is now a strong category. Besides being a good category for renovations, more homebuilders are specifying outdoor fireplaces in high-end custom homes as a sales feature.”
New from IHP is its Compass Series of smaller, linear, gas fireplaces in its Astria brand. In the same opening sizes as its traditional Gemini Series, 35 and 45 inches, the framing size is the same for both the traditional and linear models, thus allowing the homebuilder to go in either direction even after completing the fireplace framing.
Bentley line by Kingsman Fireplaces.
Dave Ivey of Kingsman Fireplaces sees a “dramatic difference” between the new-home construction markets in Canada and the U.S. “Canada is seeing a slowdown in housing starts as its economy has slowed,” he says, “and larger municipalities are running out of space for new homes, giving rise to an expansion in multifamily units. In 2020, we expect new-home construction to be up in the U.S., but housing starts to be flat in Canada.”
New-home construction represents about 25% of Kingsman’s sales, says Ivey. “But our sales are more to custom-home builders, not to the ‘down and dirty’ large tract homebuilders. Homebuilders may not be including fireplaces, but we’re seeing more builders offering the customer an allowance for a fireplace, and then sending them to specialty hearth product shops to get that fireplace.”
New from Kingsman is its Bentley line of gas fireplaces in 39-, 42- and 48-inch sizes, aimed at custom-home builders. The company’s new Enclave model is available in linear and bay styling in 49- and 60-inch sizes and featuring cool glass construction.
Modular pre-cast fireplace sytems by Mason-Lite.
In 2019, Mason-Lite, a manufacturer of modular masonry fireplaces, saw a 19% sales increase in its products going to custom-home builders. “But sales were down in Southern California where direct-vent models have taken over for environmental regulatory reasons,” says Bill Harris. “Nationally, we think 2020 will be a good sales year to homebuilders, up 12 to 15%.”
Mason-Lite’s 42-inch contemporary fireplaces are its best sellers. But Harris sees a trend to larger, linear models. “Now we’re seeing sales in 48- to 60-inch sizes, with some as wide as 120.” Suggested retail prices for Mason-Lite’s modular masonry fireplaces range from $3,450 to $19,000.
Napoleon Fireplaces has also seen Canadian housing starts going down. “Housing starts in the U.S. are going very well, but Canadian starts are off 30% and even more in some areas, because Canada’s economy is down,” according to John Czerwonka, vice president of Hearth Sales. “U.S. housing starts in 2008 were at an all-time high of about 2.5 million, but since then we have not gotten back to 1.9 million. But we think U.S. housing starts will escalate in 2020, and we’re investing heavily in the U.S. market.”
Altitude X Series from Napoleon.
New from Napoleon are more linear fireplaces, a styling trend that Czerwonka says is taking marketshare on both sides of the border. Napoleon also is improving its “out-of-the-box flexibility,” with many options including ember bed media, log sets, and facings to allow homebuilders to finish any fireplace to fit the styling taste of the customer.
Napoleon is also enhancing its lines of electric fireplaces to builders with new logs, better aesthetics, and more realistic flames. “The Net Zero and Build Green movements are gaining traction,” Czerwonka says. “If natural gas is not allowed in new-home construction, electric models can fill that spot. Sales of electric fireplaces are increasing. The industry needs to provide hearth products to fill any void caused by bans of natural gas.”
Traditional-styled, clean-faced gas fireplaces still are Napoleon’s top sellers, but linear styling is growing at a faster percent, says Czerwonka. New fireplace models from Napoleon are its Altitude X and Elevation X clean-faced models, each in two sizes with glowing ember beds, multiple surrounds, and several log set options. “We’ve been getting rave reviews from our dealers on these two new models,” he says.