Looking back at 2007, it's clear that industry growth was less than many had hoped for. The years of averaging 20% growth are behind us—perhaps for good. But the overall outlook for the ICF industry is still quite positive.
"ICFs are still the fastest growing building system in the U.S.," points out Jon Hansen, a national resource director at NRMCA.
The factors that have been driving growth for the past 5 years or so show no sign of change.
High heating and cooling costs are creating demand for more energy-efficient construction, and the green building movement continues to skyrocket. "There's a huge opportunity for niche marketing to the energy-efficiency/green building sector," says Pat Boeshart, president of Lite-Form Technologies.
Also, the insurance industry is finally starting to pressure government and code agencies for more durability. Insulated concrete forms are well positioned to take advantage of all of these trends.
There are new advantages heading into 2008 as well. Steve Heller, who began as executive director at the Insulating Concrete Forms Association (ICFA) in August, brings a level of professionalism and management experience the organization has not seen before. His leadership may signal a new era in the influence and effectiveness of the ICFA.
The commercial sector is starting to notice ICFs, as well, and recent code changes mandating ICFs and other green construction techniques in public sector construction will create significant new opportunities.
On the other hand, oil prices remain sky high, and the housing slump is still worsening. These factors will have a major influence in shaping the industry over the next 12 months, but their effects will vary from market to market.
2007 Residential Report
Last December, this magazine predicted that "certain regions across the continent will experience significant declines in residential construction. Overall industry growth will be modest compared to previous years [although] certain geographic regions and sectors, will see growth rates far above average."
This has largely been the case. Alberta and Intermountain west, for instance, saw a significant increase in residential ICF use. The gulf coast also saw modest growth, as forecast.
Overall, however, residential ICF use was down significantly—even slower than predicted. Most manufacturers report that on average, residential ICF use in 2007 was either about the same or down slightly from 2006 figures.
Of course, the U.S. residential market as a whole is down 30% compared to 2006, and the downturn has lasted longer than anyone expected.
Heller, at the ICFA, says considering the overall state of the housing industry, performance was relatively good. "It's encouraging sign that we can maintain volume even in a down market," he says.
The Housing Slump
With the majority of ICF construction still in the residential sector, the ongoing housing slump seems to be a primary concern of residential ICF contractors. Economists participating in the NAHB Construction Forecast Conference in Washington, D.C. on Oct. 24 said the markets will slide further, but recovery is in sight.
“Home sales should bottom out by the end of the first quarter of 2008,” says David Seiders, chief economist at the NAHB. Seiders admits that there is "definitely downward momentum in the market now," but believes that will change, and the long term outlook is great. “By the end of 2009, we may be at a pace of 1.5 million units of new housing," he continues. "Once we are out of the woods, we should see good growth in front of us — maybe 2 million per year.”
Ed Sullivan, chief economist at the Portland Cement Association (PCA), is more pessimistic. He predicts home construction won't rebound until mid-2009.
Bernard Markstein, a National Association of Home Builders economist, also said home building won't return to 2005 or 2006 levels for the foreseeable future, and that it isn't a bad thing.
"The real comparison should be to 2002 to 2003, back when we were meeting our needs, not to 2004 or 2005," Markstein said. "That's when we were overbuilding - we don't want to be there."
2008 Residential Forecast
Most ICF professionals interviewed for this story claimed the overall state of the housing market has a relatively small influence on the ICF industry.
"Tract building is going to stay in the hands of the wood-is-good council," said one executive. "The large homebuilding companies are comfortable with how they build, and they're not going to change unless they're mandated into building with ICFs."
"The reason we're so successful is because owners who live in our [ICF] houses are adamant that this is what they want," he continues. "The residential market is still consumer driven."
Most ICF homes are high-end custom homes, a residential market segment that has chugged through the housing slowdown relatively unscathed.
In September, the New York Times reported, "Despite a record number of foreclosures and a raft of public auctions of unwanted houses, the upper tier of the real estate market… remains relatively immune to the spreading disaster. Houses and condominiums with price tags of $1 million or more are changing hands robustly in some of the most exclusive areas, though at a pace less brisk than a year ago."
Mark Zandi, chief economist at Moody’s Economy.com confirms, “The very high end of market… has held up much better than the rest... A recession would certainly not help the high end, but it would not undermine it."
Several distributors, in fact, said the overall residential slowdown could have a positive impact for the ICF industry. As contractors try to differentiate themselves in a competitive market, more are trying out ICF construction. And homeowners, who previously felt pressured to take whatever contractors were building with, now take the time to educate themselves on construction technologies and choose the best option available—ICFs.
Jim Buttrey, an executive at IntegraSpec ICF, says, "Construction money is in the hands of the Baby Boomers, and they want an upgraded custom home. They're not going to take what the traditional spec builders are making."
The only factor that could slow down high-end custom home construction is the stricter lending standards that make it harder to qualify for large home loans.
Regional Growth: Of course, there will be significant regional variations. With oil prices still high, ICF sales in Alberta are outstanding, and will continue to be through 2008. The Rocky Mountain states and Western U.S. will also see good growth
Along the Gulf Coast, growth is predicted to be only moderate, which is somewhat of a letdown considering all of the rebuilding talk going on after Hurricane Katrina two years ago.
"The reason is there are not enough of us in the ICF industry to affect the inertia of an entire area," says Boeshart. "Ninety-nine percent of the people out there don't even know this concept exists."
He compares the hurricane damage to kicking an anthill. "You come back and you'll find them building the same anthill, the same way. We don’t have enough clout to teach new state-of-art technology so quickly."
Despite the cautious outlook for 2008, the long term potential of the region is outstanding. Manufacturers are already making strategic investments in the area: two major ICF companies set up manufacturing plants on the Gulf Coast this year.
Bottom Line: Overall residential ICF construction will do better in 2008 than it did last year, helped by a small recovery in the overall market and a shift in power back towards the custom homeowner, who is now better-educated.
The years of 20% annual growth are gone, but residential ICF growth could reasonably hit 5%-7%, with stronger growth in the Mountain States and points west. The Midwest, Great Lakes, and Atlantic regions will see very little growth in the residential sector, but will probably maintain sales at 2006 and 2007 levels.
As forecast by this magazine last year, ICF use in the commercial sector has skyrocketed, and seems to match the 25% growth predicted.
Commercial ICF construction was the primary factor in 2007's industry growth, and will continue to be a major factor in 2008. Residential ICF use, which accounted for 70% of the market in 2006, could shrink to 50% or less by 2010.
Industrial, Commercial, and Institutional (ICI) construction is especially hot.
"We have some great opportunities to market energy efficiency and speed of construction to owners and developers," says Boeshart.
Buttrey highlights the reduced operating costs that ICF construction offers. "There is no legacy of maintenance," he says, "and with the uncertainty of fuel and heating costs, anyone wanting a climate-controlled building should be looking at ICFs; it can reduce energy costs by 80%."
In addition to the economic incentives, a number of states are now mandating ICF or energy-efficient construction. Kentucky, for instance, now requires all public schools to be built from insulated concrete forms.
Four other states, including Oregon, Washington, and Georgia, require all new construction that receives public funding to meet LEED silver-level standards or higher. To achieve that many points, the exterior walls must be extremely energy-efficient, and ICFs are often the most cost-effective way to achieve this.
On Jan. 1, 2008, California's building code will upgrade to a higher standard of construction, with stricter energy, fire, and seismic requirements that favor ICFs.
ICF manufacturers are working to take advantage of this shift; Three of them introduced new, wider blocks this year to compete better in commercial markets.
Bottom Line:Overall commercial ICF construction will do even better in 2008 than it did last year. A year of 25% or even 30% growth is not unrealistic.
Growth will be especially strong in the Pacific Coast states of California, Washington, and Oregon, thanks to the new building standards implemented there.
The ICF industry still faces some enormous challenges; transportation costs, contractor training, and public awareness of the technology must all be addressed.
My independent research indicates that instead of the 7% growth predicted, ICF use in 2007 was about 105 million sq. ft., a nominal 2% increase over last year.
These temporary plateaus in industry growth have happened before. Pieter Vanderwerf, a longtime industry observer, once referred to them as "the pause that refreshes." He noted in a 2001 article that companies can take advantage of slow times to re-focus marketing efforts, develop new products, and be better positioned when the market picks back up again.
Rising Costs: The biggest challenge facing ICFs in 2008 may be the high price of crude oil. It may be creating interest in ICFs, but it's are driving up costs as well
"Oil prices are a double whammy," says Boeshart. "Right now, we're looking at $100-a-barrel oil with every reason to expect that to continue. That's going to affect the cost of raw materials, and it's going to affect shipping.
The polystyrene bead that is expanded into EPS foam is derived from petroleum. With oil prices nearly triple a few years ago, the cost of making ICFs will inevitably rise. Everyone in the industry—bead suppliers, form molders, distributors, and contractors—will need to work together to ensure ICFs remain cost competetive.
Fuel costs are another major concern. "No one can ignore transportation when diesel is a $3.40 a gallon," says Boeshart.
"Freight costs are the Achilles heel of this industry," he continues. "It's one of the issues we must focus on, and we can’t ignore it any longer."
Knockdown or panel systems, where the forms are shipped disassembled, may become more prevalent. A truckload of knockdown or hinge-tie ICFs will build nearly double the square footage of a pre-assembled system.
Leading manufacturers are already making adjustments. American Polysteel introduced a knockdown block a few years ago. Logix, one of the top three ICF brands, plans to introduce a panel form sometime in 2008 to complement its line of pre-assembled blocks. Other brands are dealing with high fuel costs by increasing the number of manufacturing locations. "Our only hope is to make ICFs a locally produced product," says one.
Falling Dollar: World currency markets will also affect the industry. In years past, the Canadian dollar has been worth about 60 cents to the U.S. dollar, which gave Canadian ICFs such as Logix, Nudura, Arxx, Quad-Lock, Amvic, IntegraSpec, and others a pricing advantage. Now the Canadian dollar is worth more than the U.S equivalent, and U.S. brands like Reward, PolySteel, and Eco-Block may become lower-priced
Boeshart says tooling may change as well. "The $1.35 [U.S.] per euro is now $1.50. Molding tools from Asia are becoming more and more attractive."
Field Issues: Contractors have challenges as well. (See story on p. 37). Unfortunately, 2008 will likely bring no easy solutions to the issues identified. Educating the public is a long term process, and getting the construction trades to adapt will take years as well.
Despite the challenges, individual contractors who know how to market their product are having great success. "The most successful people in this industry," says Buttrey, "are good builders, but they are also good educators. The key is helping people understand the benefits."
The Bottom Line
Despite the challenges, the ICF industry will expand modestly in 2008. Strong growth in the commercial sector, coupled with a small improvement in the residential outlook will likely use about 115 million sq. ft. of forms, up 8% from the 105 million sq. ft used in 2007.
The ICFA, which usually publishes an annual summary of its shipment data, has not done so as this issue went to press. As soon the report is finalized and becomes publicly available, it will be posted on our website, www.icfmag.com.