Homes sales, aging propel remodeling industry
Wednesday, March 22, 2017
Rising home prices and sales of existing homes have boosted recent remodeling activity, while major life-stage events for the nation's two largest demographic cohorts will continue to drive demand in the next decade. Those are the findings of two recent analyses by the Joint Center for Housing Studies at Harvard University (JCHS).
As the nation's housing stock undergoes a gradual transfer of generational ownership, remodelers can expect sustained but fluctuating growth in business for the foreseeable future.
Spending on home improvement, maintenance and repairs rose 6 percent in 2016, compared to 2015, according to JCHS's recent report, "Demographic Change and the Remodeling Outlook." Metro Study announced that its Residential Remodeling Index for the fourth quarter of 2016 hit a new all-time high of 106.1 (up a point from the previous quarter), which represents a 4.5 percent increase from the same quarter last year. The index has reported gains for the past 19 consecutive quarters.
The National Association of Home Builders (NAHB) stated its quarterly Remodeling Market Index, which tracks remodeler sentiment, experienced a seasonal adjustment in the fourth quarter of 2016, dropping four points but remaining in positive territory at 53. The index has been in positive territory for 15 consecutive quarters.
Although projections vary, industry experts anticipate that demand will continue to be healthy throughout 2017.
JCHS's more recent forecast is for 6.1 percent overall industry growth, on par with 2016's growth rate. Metro Study predicts an annual growth of 4.4 percent this year, also close to its assessment of 4.5 percent growth in 2016. Foreseeing more gradual growth, NAHB's remodeling forecast shows remodeling activity will grow at a moderate pace of 1 to 2 percent annually over the next two years.
Much recent demand for remodeling services can be attributed to increased activity in the housing market.
After a somewhat slow start last year, the National Association of Realtors reports existing home sales in January reached their fastest pace in almost a decade, adding to gains in November and December of last year. January's pace was 3.8 percent higher than a year ago.
According to JCHS, growth in home improvement has been closely tied of late to demand for housing. A recent article on its "Housing Perspectives" blog by research analyst Elizabeth La Jeunesse states that spending on home improvement this year is expected to be highest in 43 of the nation's 50 largest metro areas, increasing 6.8 percent (compared to 6.1 nationally), with a third of the largest metro areas possibly seeing as much as 10 percent growth.
Areas where demand for housing is high and prices are not as high as other parts of the country are likely to experience the most growth. These include metro areas in the Midwest, parts of New England and the South.
Many buyers of existing homes are undertaking alterations to update older homes and remodel them to their liking, while rising prices have made it possible for current homeowners who are looking to sell or planning to stay put to borrow against the increased equity to make long-awaited improvements.
Changing demographics also are trending in remodelers' favor. In its study, JCHS points out that two major demographic shifts crossing paths will help maintain demand for remodeling services in the coming decade.
Baby boomers, who have been the main consumers of remodeling services for the past 20 years, will make up an even larger share of the market — perhaps as much as 56 percent — as they invest in modifications to make their homes more accessible and functional as they age.
Meanwhile, as more and more millennials cross the threshold into their 30s, they will be forming households and buying homes. Since most of them will want or need to purchase a previously owned home, they will want to remodel and update those homes to suit their needs and lifestyle.
These younger homeowners are expected to represent a smaller share of the market over the next 10 years — less than 10 percent — compared to boomers and Gen Xers. However, as boomer demand begins to diminish, they will be reaching their peak earning (and spending) years, and thus "will increasingly set the pace of the remodeling market expansion."
While several factors — including a shortage of skilled labor, increased materials prices and potentially rising mortgage rates — could affect these projections, for now, the outlook for the remodeling industry remains positive both the short and the long term.
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