Remodelers expect healthy gains, forecasters project modest growth
Tuesday, March 12, 2019
Will 2019 be another busy year for remodelers, or will demand begin to taper off? Data from recent industry studies provide somewhat contrasting views, with remodelers expressing confidence about their business prospects and industry economists foreseeing much more modest growth for the year.
One point on which they both agree is that market and demographic trends will sustain positive demand for remodeling services for several years to come.
Heading into 2019, remodelers who took part in the Houzz Q1 Renovation Barometer were adjusting their sights downward as activity slowed during the latter part of the fourth quarter of 2018. However, those participating in the Houzz 2019 State of the Industry Report were generally much more optimistic.
Nearly 8 in 10 remodelers (78 percent) said they expected 2019 to be "Good" or "Very Good" for business. Nearly three quarters of respondents (71 percent) expected to gain more revenue in 2019, and nearly two thirds (63 percent) expected higher profits. As a group, remodelers anticipated revenue growth at around 8.7 percent over last year (down from 10.5 percent in 2018), with some firms projecting revenue growth as high as 11 percent.
Those figures are considerably higher than what industry economists are projecting for the year. According to MetroStudy’s latest forecast, released with the results of its Q4 2018 Residential Remodeling Index (RRI), 2019 and 2020 are expected to see slower growth rates compared to the last few years of booming business. MetroStudy forecasts positive growth in the 379 Metropolitan Statistical Areas (MSAs) it covers, at an average rate of 3 percent.
Along similar lines, the most recent Leading Indicator of Remodeling Activity (LIRA) from the the Joint Center for Housing Studies of Harvard University (JCHS) projected gains in renovation and repair spending to owner-occupied homes in the U.S. will shrink from 7.5 percent in 2018 to 5.1 percent in 2019. (The LIRA includes all costs of homeowner improvements and repairs, not just remodeling services.)
Abbe Will, associate project director in the JCHS Remodeling Futures Program, stated, "After several years of stronger-than-average increases, the pace of growth in remodeling activity is expected to fall back to the market’s historical average annual gain of 5.2 percent."
At a press conference held during this year’s International Builders Show (IBS), representatives from the National Association of Home Builders predicted that remodeling spending for owner-occupied single-family homes will increase a modest 1.6 percent in 2019 and another 1.1 percent in 2020. Nonetheless, 2018 NAHB Remodelers Chair Joanne Theunissen reassured those in attendance, "Remodeler confidence continues to remain at a high level."
That confidence appears to be well-founded. At present, every indication points to continued positive growth for the industry. A newly released report from JCHS, Improving America’s Housing 2019, concludes, "Over the next decade, the strong preference of older homeowners to age in place and the increasing difficulty of building affordable housing in many markets will continue to hinder the construction of new homes. The remodeling industry will therefore retain its critical role in helping the country meet its housing needs."
Mark Boud, chief economist at MetroStudy, expressed a similar outlook. "Rising mortgage rates over the next few years will continue to dampen home sales, but will also persuade more Americans to stay-put in their current homes and renovate there," says Boud. "An aging housing stock exacerbated by low levels of new home construction are additional factors that we believe will allow the remodeling cycle to extend into ‘extra’ innings."
Both the remodelers who participated in the Houzz study and the NAHB panelists at IBS acknowledged that shortages of skilled labor and rising costs of labor and materials presented challenges for the industry that could contribute to somewhat slower revenue growth or lower profits. Whatever the final growth figures turn out to be, remodelers can find some solace knowing the long view is trending in their favor.
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