KUALA LUMPUR: The outlook for the Malaysian furniture market remains bleak as the sector's largest export destination, the US, continues to experience housing issues.
Hong Leong Investment Bank (HLIB) Research, which has a "neutral" call on the sector, said US home prices remain elevated despite falling demand and a shortage of supply while high mortgage payments make housing unaffordable for prospective homebuyers.
According to the research firm, the US housing market began to cool following the start of the Federal Reserve's interest rate hikes in 2022 as elevated mortgage payments began to rise.
However, the decreased demand has not negatively affected home values, which remain elevated relative to pre-pandemic levels.
HLIB said there is a shortage of new supply; although new US housing starts rebounded in May 2023, headwinds remain for builders who are reliant on construction loans as the Fed looks to hike rates two more times in the second half of 2023.
Meanwhile, existing homeowners are reluctant to sell their homes in light of the rising interest rates, as more than 90% of them have low mortgages below 6%.
"We believe that US home buying is not expected to pick up soon and thus, continues to negatively impact furniture demand," said HLIB.
It reported that Malaysia's wooden furniture exports in 4M23 declined to RM2.6bil, representing a fall of 39.6% year-on-year, from RM4.3bil in 4M22.
Apart from the negative impact from the US housing markets, the annual decline was also owing to the pandemic demand highs in 2022 due to work-from-home practices.
Singapore, the second-largest export market of Malaysian wooden furniture, however, helped to offset some of the decline with a 32.7% increase in purchases.
HLIB said some reprieve could come from the strengthening of the US dollar against the ringgit, as 70%-90% of the revenue of the furniture stocks under its coverage are denominated in US currency while costs are in local currencies.
"With lower ASP and sales volumes, this should help alleviate some margin compression in the furniture companies’ bottom lines," said the research firm.
In the event the US starts cutting rates in 2024, HLIB expects furniture demand to recover.
