Kitchen and bath activity remains bright spot amid slowing market
Wednesday, August 03, 2016
Home remodeling and renovation activity weakened somewhat during the second quarter. Across the board, major indicators reported slight declines, particularly in larger renovation and design projects.
Nonetheless, activity overall remains well within positive territory and is expected to continue on a steady pace for the rest of the year, with kitchen and bath projects leading the way.
According to the latest Leading Indicator of Remodeling Activity (LIRA) reading from the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University (JCHS), the industry can expect "above-average gains" in home renovation, remodeling and repair, with activity accelerating going into 2017 and coming "close to full recovery" by mid-2017.
"The LIRA anticipates growth in home improvement and repair expenditures will reach 8.0 percent by the start of 2017, well in excess of its 4.9 percent historical average," JCHS states in its release.
While good news, this projection is substantially lower than the one JCHS provided in April, which foresaw growth climbing to 8.6 percent percent by the end of 2016 and hitting 9.7 percent during the first quarter of 2017. In addition, growth is expected to be stronger in home repairs and smaller, DYI homeowner projects, which is good news for suppliers but less so for renovators and remodelers.
The slowdown in activity is reflected in the National Association of Home Builders' Remodeling Market Index for the second quarter, which declined a point from the previous quarter. While not a cause for major concern, this dip follows a four-point drop in the first quarter reading, signaling a slight downward trend for the first half of the year.
NAHB states its remodeling members reported "steady work" during the second quarter and an increase in bids that should translate into a higher score for the third quarter. At the same time, remodelers experienced a three-point decline in major additions and alterations and a five-point drop in backlog of future remodeling projects.
Similarly, Houzz announced its Q2 2016 Renovation Barometer shows "widespread confidence in the home renovation market," with various sectors providing readings of 63 or higher (readings above 50 indicate positive growth). Again, while not cause for alarm, this is a notable drop from the Q1 Barometer, which reported overall readings of 68 and higher, and the fourth quarter of decline in a row.
Much of the downturn came from architects, designers and design-build firms, whose scores were five to seven points below those of Q1. These figures track with data from the American Institute of Architects and American Society of Interior Designers, who reported a softening in design activity in the second quarter.
In addition, most sectors reported fewer new project inquiries. Houzz states, however, that many firms report increases in business and "the outlook for Q3 continues to be positive."
Among those enjoying increased business are kitchen and bath specialists. More than half the designers and specialists in the Houzz Q2 Barometer (58 percent and 52 percent, respectively) reported an uptick in kitchen and bath business from the previous quarter.
Speaking with CNBC, Brad Hunter, chief economist with HomeAdvisor, remarked that kitchen and bath remodels continue to be the most popular with homeowners. Both Hunter and Houzz stated that more homeowners are now taking on multiple projects, such as remodeling both the kitchen and the bath.
Given recent consumer surveys that show many homeowners plan to undertake home remodeling and renovation projects this year, the slowdown in second-quarter activity would seem to indicate some hesitation, perhaps due to the corresponding lackluster housing market in early spring or concern about the weakening global economy.
With consumer confidence holding steady throughout the third quarter and strengthening in the housing market, the business outlook should improve in the second half of the year.
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