With another year drawing to a close, it’s useful to glance back at the major industry events of the past twelve months, and also take a hard look at the road ahead for the industry.

The greatest factor affecting ICF use is the state of the overall economy. The “housing correction” that began in 2007 has ballooned into the Great Recession and affected everyone. Credit markets remain tight despite the hundreds of billions of dollars thrown at it, and double-digit unemployment has become a reality.
But despite the dismal numbers, there has been unmistakable progress. And economic recovery is on the horizon. Green building continues its explosive growth, and there is still time for ICFs to get on board. The industry trade association and several major manufacturers have undergone significant transformations as well.
Here’s a look back at the milestones of 2009, and what the industry can expect in 2010.

Economy
Construction was agonizingly slow during the first half of this year. Many ICF companies said revenue “fell off a cliff” when the calendar turned to 2009. This was largely just a reflection of the general construction market.

Both residential and commercial starts were far slower than anyone predicted 12 months ago (see below for details), but the worst seems to be behind us.
Gary Brown, director of sales and marketing at Amvic, says, “Most people I spoke with see the next year as better than 2009 with the fourth quarter 2010 showing more positive growth into 2011. [There’s] some guarded optimism that the economy has hit bottom and there are signs of a slow recovery.

Economist Alan Beaulieu told an audience of ICF professionals in November that policy changes in Washington are dragging the economy down. “The next 9 to 18 months of recovery are going to be more difficult than the last 9 to 12 months,” he says. He believes real recovery won’t come until the housing market is stabilized and the debates over health care, energy tax, and financial regulation policy are resolved. “Uncertainty is paralyzing business and the economy,” he states.

Green Trends
Green building remains huge, and shows no sign of slowing down. The U.S. Green Building Council (USGBC) estimates that green construction will support nearly eight million jobs by 2013. They estimate that green construction will continue to grow at more than 25% annually, and that about a half million square feet of new green construction projects will begin every year.

Norbert Young, president of McGraw-Hill Construction, writes, “By 2013, we estimate [the] overall green building market to more than double, reaching between $96 and $140 billion, versus $36-$49 billion today.” His firm estimates that by 2013, about 15% of residential projects and 23% of commercial projects will be “green.”

So far, the ICF industry has failed to capitalize on that momentum. Other than retooling their logos, no company or industry group has stepped forward to promote ICFs to the groups defining the green building movement. The building system isn’t represented in meetings where the codes, green building standards, and other criteria are decided upon. And that lack of representation is costing the industry market share. McGraw-Hill, for instance, defined green building as “one built to LEED standards…or one that incorporates numerous green building elements across five category areas…Projects that only address one aspect of green building, such as energy efficiency, are not included in this calculation.”
Murray Snider, owner of Nudura ICF and chairman of the board at ICFA admits, “We have a good story to tell, but we’re not telling it…we dropped the ball; our competitors picked it up and ran with it. We need to get our act together now or we’re going to miss it.”

Whether or not ICFs can fully take advantage of the “sustainable building” movement remains to be seen.

The year 2009 may be best remembered in this industry for the internal changes.
ICFA, the industry trade association, has struggled for the last two or three years, hobbled by poor financial management and a lack of clear direction. In October, ICFA returned to its roots as a manufacturer-driven association, installed a new board of directors, and turned over day-to-day administration to the EPS Molders Association. Betsy Steiner, who now serves as ICFA executive director, is a strong personality with proven leadership skills. She has high hopes the association can produce significant substantial benefits to its membership in the coming months.
“The ICF industry is at a major cross-road,” says Robert Klob, who attended the ICFA conference in November. “We just need to understand that if we work together, we will succeed together.”

The relative strength of the various ICF brands has also shifted. The industry seems to be separating into tiers, with the largest players gaining market share while the smaller, regional ICF brands are being driven to extinction. Nudura and Logix are clearly at the top of the heap, followed by half-a-dozen well-managed companies with a quality product and a solid business model. BuildBlock, Fox Blocks, Greenblock, Quad-Lock, Reward, and Amvic fall into this group.

Based strictly on anecdotal evidence, it appears that some of the biggest gains in market share have been made by the “vertical ICF” companies, TF Systems, Hobbs, and HercuWall.

The best financed companies, on the other hand, have struggled. Owens Corning and Knauf USA have more marketing muscle than the rest of the industry combined, yet they have never been able to effectively promote their ICF lineups, and their market share remains negligible. Arxx Corp. fell into a similar trap last year, buying up market share but falling short of its goal to become the leading ICF supplier. With a new management team at the helm, they have plans to return to top-tier status in the coming years.

Some of the shift in the strength of various ICF companies may be due to new pricing strategies. “We have seen some very competitive price levels that will make the need for increased sales to cover off-the-margin shortfalls,” says Brown, at Amvic. “I sense this is a combination of panic on some of the block companies’ side and the fact that traditional building material costs have eroded through the economic downturn and our industry is forced to react.”

Residential Report
The residential construction market remains stagnant. And even though housing starts seem to have hit bottom, recovery will be slow and gradual.
The root cause is basic supply-and-demand. The United States needs about one million new housing units annually. But in 2004 and 2005, developers built between 1.6 and 1.7 million units each year. That was clearly unsustainable. The bubble burst, and with the oversupply of new homes, construction fell more than 60%. In 2008, only 650,000 single-family homes were built. Economists predicted a slight recovery in 2009. NAHB forecast 750,000 new homes; this magazine predicted 700,000. Both proved overly optimistic. According to Dept. of Commerce figures released in mid-November, single-family housing starts will end this year around 500,000 units.

The residue of overbuilding still lingers across the country. Because home values crashed, neighborhoods are now flooded with foreclosures, bank-owned properties, and short sales. Lenders who freely financed projects in the past have tightened loan standards to impossible levels. Potential new home buyers are having a hard time selling their existing home, and many are unwilling to commit to a deal when they believe prices may continue to fall.
These conditions will persist through 2010, but will resolve themselves in the first half of 2011. “Time is on our side, and so is the bank’s desire to make money,” says Beaulieu.

Fortunately, residential ICF construction is partially insulated from these factors. Much of the construction in this sector is high-end custom homes which are owner-financed. With the low cost of building materials, many are finding it a great time to build their “dream home.”

Perhaps that’s why ICF use has fallen only 20% from its 2007 high, while wood frame construction has fallen more than 60% in the same time.
So what was total North American residential ICF in 2009? Exact figures are notoriously difficult to track down. ICFA no longer requires shipment data from members, and form manufacturers don’t track exactly where their forms are used.
This magazine predicted residential ICF use in 2009 would be about 54 million sq. ft., down from 59 million in 2008. Interviews with regional sales reps, form molders, and top distributors lead me to suspect it was somewhat lower than that.
Best indications are that residential ICF construction is down about 25% for the year, to about 44 million sq. ft. of installed wall—the same volume as 2004.

Residential Forecast
Residential construction markets across the country are struggling to find their footing. And while the worst may be behind us, don’t expect 2010 to be too much different from the last twelve months.

David Crowe, chief economist for the NAHB says financing is finally starting to loosen up, and “with the number of new homes on the market at its lowest point since 1982, there should be an uptick in housing starts and sales through 2010.”
“I think we will see a bounce up,” he affirms, “but not substantially… It will be a much slower recovery than is typical for growing out of recession.”
Additionally, analysts say rising unemployment could put a damper on sales, and foreclosures continue to rise. As of November, nearly 13% of all home loans were in some sort of distress.

“Don’t expect a rip-roaring rebound,” says Mike Larsen, an economist at Money and Markets. “This is going to be more of a gradual process that will take a long time.”
ICF custom homebuilders can expect summer 2010 construction to be slightly better than last year, as existing home sales are starting to improve. Spec builders and those building basements are in for another dismal year. Residential ICF will hold flat, or grow no more than a few percentage points. The best estimate is around 45 million sq. ft.

Commercial Report
Twelve months ago this magazine predicted, “ICFs will continue to gain market share in the commercial sector, even as general construction slows down. Projects are being delayed to financing issues, and pricing is extremely sensitive.”
This forecast has held true. Commercial construction in general is down slightly more than predicted—about 15%—but within the ICF industry, commercial usage has remained almost level due to increased market share.

The drop in commercial construction was led by the hospitality sector. Reed Construction Data reports, “Hotel construction starts fell 57% year-to-date…with September starts more than 75% below the average month during the fall 2005–summer 2008 hotel building boom. Spending will decline a further 7% into next summer.” Most of drop was caused by destination-style luxury hotels being cancelled.

Office and retail construction also fell dramatically, down 40% from its peak in 2007, and down 5% from last year. Steve Reiter, VP of marketing at GreenBlock, says that the market has changed entirely. “Last year projects were on hold because of financing issues,” he says. “This year, they’re being cancelled entirely because the vacancy rate in existing buildings is so high.”

Still, ICFs have fared well in the commercial sector. Individual form manufacturers have opened new segments to the entire industry. Nudura, for instance, has almost single-handedly pried open a huge market for ICFs in educational construction.
Other brands have carved niches in church and theater construction. Large hotel chains are also turning to ICFs.

Pinning down an exact number for overall ICF use in commercial construction is difficult. Nearly every distributor, contractor, and regional sales manager I spoke to, though, said commercial projects were a major factor in keeping them afloat through 2009.

Commercial ICF usage in 2008 was about 28 million sq. ft. This year probably matched that figure, but did not exceed it.

Commercial Forecast
The industry is rapidly approaching a tipping point, where commercial ICF use will outpace the residential market. If current trends continue, we could reach that point as early as next year.

Companies with a well-established reputation in the commercial market will continue to find work, although it will become more competitive. Tales of working for months to land a lucrative job, only to have it stolen by lower-priced ICF competitor will inevitably become more common.
School construction is set to boom. A large portion of the stimulus funding is earmarked for education, and financing for government projects is relatively easy to secure. With an eye on energy efficiency and healthy living space, expect significant opportunities here.

Several potential markets, such as military and government construction, remain virtually untapped, although they remain lucrative. Military construction, for instance, is set to receive $10.2 billion in Stimulus funds next year.

In all other areas, though, commercial construction will continue a slow decline. In previous recessions, commercial construction has lagged residential by about 18 months, which means it won’t hit bottom until the third quarter of 2010.
Better market penetration will partially offset this slide, so expect a modest decline next year, to about 25 million sq. ft. of ICFs installed.

Conclusions
Obviously, this forecast will vary regionally. The Rocky Mountain and Midwestern states are experiencing more growth than either coast, and ICF use continues strong in the provinces of Alberta and Ontario. New York and Pennsylvania show the strongest ICF use east of the Mississippi. Areas that were significantly overbuilt during the bubble, such as Florida, Las Vegas, and other parts of the southwest will take longer to recover than areas with modest growth.

Regardless of where your business is based, real recovery is not going to happen in the short-term future. Beaulieu predicts this economy will “bounce along the bottom” through 2013, when housing starts will finally return to the million-homes-a-year mark. “Real recovery will not begin until 2017,” he states.
For 2010, he suggests investing in training, marketing, and looking for additional customers. “Invest in assets that hold their value because inflation will kick in midway through the year,” he says.

Still, he is optimistic that with positive leadership and the right goals, companies can flourish in these troubled times. Beaulieu says, “There are enormous opportunities for the average individual to generate substantial wealth.”