Long-term remodeling outlook foresees strong growth
Wednesday, November 15, 2017
Coming on the heels of third-quarter indicators that showed sustained high levels of activity in the remodeling industry for the remainder of the year, recent longer-term projections forecast even higher levels of growth in the coming year and beyond.
Analysts foresee a perfect storm of a continued shortage of available housing for sale combined with rising home values and eventual increases in mortgage rates putting pressure on current owners to remain in their homes and remodel rather than purchase a next home. On top of that, the need for reconstruction, renovation and repairs due to the recent losses from hurricanes, floods and fires will increase demand more than usual.
Even with some decline of activity as a result of the natural disasters that occurred in September, remodeling activity increased in the third quarter of this year. The National Association of Home Builders reports its Remodeling Market index rose by 2 points, to 57, compared to the score for the second quarter. The index for current market conditions rose by just 1 point, but the index for future market indicators, at 58, was up 3 points.
"Remodelers are seeing higher demand in residential repairs," said NAHB Remodelers Chairman Dan Bawden, "and expect to be busy well into the new year with jumps in work backlog, call for bids and proposal appointments, likely due in part to the significant damage caused by hurricanes across the southern states."
That assessment correlates with the findings of Houzz's third-quarter Renovation Barometer, which also found remodeling activity up quarter-over-quarter and remodeler sentiment optimistic about demand continuing into the fourth quarter. It also showed the level of backlogs had increased in recent months.
Looking ahead to next year, longer-term projections are forecasting potentially even higher levels of demand. In releasing its third-quarter National Residential Economic Report, Metrostudy projects that the surge in remodeling activity that began in the second quarter will continue throughout 2018 and likely well beyond.
Their economic model shows the current undersupply of housing will continue and possibly worsen over the next three years. With home prices rising resulting from tight inventories and increased construction costs, more homes will become overvalued. Mortgage rates also are expected to rise, although gradually, adding to the cost of buying a home.
Taken together, these factors may force more homeowners to remodel as they will not be able or willing to purchase a next home, observes Mark Boud, senior vice president and chief economist of Metrostudy.
Chris Herbert, managing director of the Joint Center for Housing Studies, concurs.
"Recent strengthening of the US economy, tight for-sale housing inventories, and healthy home equity gains are all working to boost home improvement activity," Herbert said in announcing the Center's most recent Leading Indicator of Remodeling Activity (LIRA) forecast.
Revising its projection of 6 percent growth in 2018, the Center now foresees that annual gains in home renovation and repair spending will increase from 6.3 percent in the fourth quarter of 2017 to 7.7 percent by the third quarter of next year.
"There is certainly potential for even stronger growth in remodeling next year as major reconstruction and repairs get underway" in regions affected by the recent natural disasters, Research Associate Abbe Will added.
LIRA projections include home repair and do-it-yourself projects, so it remains to be seen yet what proportion of this growth might fall to remodelers, kitchen and bath specialists, and interior designers. Nonetheless, at present, the outlook for 2018 suggests professionals can expect continued and likely increased demand in the coming year.
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