The housing market appears to be headed for another record-breaking year, which is good news for contractors and construction distributors.

Last month, both long- and short-term mortgage rates climbed, but continued to stay below 6 percent, which means that more people could afford to buy homes, as well as remodel existing ones.

Jim Haughey, an economist with Reed Research Group, points out that the housing market has been strong because homes have been perceived as good investments compared to securities. Securities have dropped sharply in recent years, and home ownership has risen to a record 69.1 percent of households, compared to 67.8 percent two years ago. At the same time, homeowners increased remodeling spending 9.3 percent (which is probably considerably underestimated by the U.S. Census Bureau and likely to be revised soon), Reed Research reports. (See Eye on Construction, p. 28, for more information.)

Another factor driving the market is additional investments in housing by people buying second homes and investment properties. In particular, Haughey said, a large share of speculative buying is being done by foreigners, largely Europeans, who are attracted by the currently cheap U.S. dollar, down 40 percent against the Euro in the past few years.

There is other good news as well: the office construction market finally appears to be increasing, as does the hotel industry. And public agencies spent more than $1 billion on 99 new library facilities and 104 renovation projects between July 1, 2003 and June 30, 2004, according to The Library Journal.

Will the bubble in the housing sector and the overall construction market ever burst? That's the question many people continue to ask. And there seems to be no clear-cut answer as to when (or if) the sector will cool off. Some regions are starting to see a cool-down in prices, but activities on both coasts seem to be as strong as ever.

So, is this the time to look at new markets? You bet. Many construction distributors are making money beyond traditional construction markets. Our cover profile (p. 12), Centaur Enterprises, sells not only to the construction market, which includes HVAC, and plumbing, electrical and general supplies, but also to industry for MRO and OEM products. INDUSTRIAL DISTRIBUTION'S 59th Annual Survey of Distributor Operations shows that construction distributors are branching out into a number of new, profitable sectors. It's something to keep in mind.

jkeough@reedbusiness.com