Keepers accelerating pace of remodeling activity
Wednesday, September 20, 2017
Benefiting from low-rate mortgages and rising home values, more Americans who traditionally would be in the market to buy up are choosing to remain in their current homes. Many are taking advantage of the increase in equity to take out home loans to pay for upgrades and repairs.
That, in turn — as remodelers already know — is creating more business for the remodeling industry.
According to recent reports, the pace of activity heated up in the second quarter as home inventories tightened and home prices began to soar — up more than 6 percent over the same period last year. MetroStudy announced last month that its Residential Remodeling Index for the second quarter hit a new record high, increasing 1.3 percent from the previous quarter but 4.7 percent from the same time last year.
"We expect the Residential Remodeling Index to continue increasing this year and through the three-year forecast," state Mark Boud, chief economist at MetroStudy. "Any easing in project activity would more likely be due to limitations caused by labor shortages in the construction industry and a tight supply of existing homes for sale, rather than any deterioration in consumer driven demand for home renovation."
MetroStudy is projecting 4.6 percent growth year-over-year industry-wide in 2017, with an average 3.4 percent growth year-over-year for the years 2018 to 2020. It expects for the first time in the index's history to see gains in all major metro areas this year, with an average growth of 4.4 percent.
Similarly, the Joint Center for Housing Studies at Harvard University revised its Leading Indicator of Remodeling Activty (LIRA) forecast upward following the second quarter. JCHS anticipates "healthy and stable growth in home improvement and repair spending" for the remainder of the year and into the first half of 2018, with an annual increase of 6 percent. (The higher growth projection may be in part because LIRA includes both home improvement and repair, including DYI, as well as remodeling its analysis.)
Results from the 2017 Q2 Houzz Renovation Barometer, released in July, found "high quarter-over-quarter confidence for all industry sectors." Both revenues and the size of projects had increased from the first quarter. Practitioners expressed strong optimism that activity, sales and revenues would continue to increase for the remainder of the year.
The most recent U.S. Department of Commerce statistics on construction activity for July point to "the recent strength is coming from single-family and home improvement" as the one bright spot in a month when construction spending overall declined for the second month in a row.
The only negative report for the quarter was from the National Association of Home Builders, which reported that its Remodeling Market Indicator for the second quarter fell 3 points compared to the first quarter, to 55. Nonetheless, the RMI has remained in positive territory (50 or above) for the past 17 quarters, demonstrating a consistent growth trend.
NAHB Remodelers Chairman Dan Bawden explained that analysis showed the decline was not due to weakening demand, but rather to concerns over the shortage of skilled labor.
"Remodelers are finding they have to decline projects because they can't hire enough skilled staff to keep up with the demand," Bawden said.
While many factors are helping to account for this surge in activity, including the aging of the baby boomer population and pent up demand from the years following the recession when owners were leery to spend additional money on their homes, a major factor of late has been the growing proportion of current homeowners choosing to remain in their current home.
According to a recent Chicago Tribune article, the trend is so pronounced it's changed the dynamics of the housing market. The article cites research conducted by John Burns Real Estate Consulting showing that the percentage of homeowners moving up to their next home is the lowest in 25 years.
"Instead of moving," said Tom Tomalak, the firm's vice president of research, "people are deciding to make starter homes permanent and are expanding and repairing them for the long term. ... We've never seen this in any prior cycle."
While a shortage of skilled labor and rising materials prices remain challenges for remodelers, for now the future looks bright and busy. With household incomes flattening and noises being made in Washington about new tax reform legislation possibly rescinding the home mortgage deduction, homeowners are likely to hunker down and stay put for some time to come.
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