Remodeling activity increases as home equity grows
Wednesday, July 19, 2017
Remodelers are riding the rising tide of home values.
According to recent industry polls, home improvement and remodeling professionals in all sectors, as a group, experienced increased business in the second quarter, compared to the first, and are seeing a higher number of inquiries than they did at the same time last year. Despite some challenges to meet demand, expectations for continued growth in the second half of the year remain strong.
Home prices in May were up 6.6 percent from a year ago, according to CoreLogic's Home Price Index, boosting home equity as well. Black Knight Financial Services forecasts home equity values — already approaching $5 trillion in the first quarter of this year — will reach record levels this summer.
"Over 40 million Americans with a mortgage now have tappable equity available in their homes," the firm's executive vice president Ben Graboske stated. "This is the largest this population has ever been."
As CNBC reported in May, home equity lines of credit are booming as more homeowners are choosing to remain in their current home and renovate, drawing on the assets in their home rather than taking out a second mortgage to pay for improvements.
Higher home values mean homeowners have more to spend. Industry studies show increased requests this year for larger, higher-end projects, with kitchen upgrades and bathroom renovations topping the list.
Brad Hunter, chief economist for HomeAdvisor, commenting on results from the Q2 2017 Home Advisor Farnsworth Index, noted an increased demand for discretionary projects.
"Whereas four or five years ago, homeowners tended to do the bare minimum to keep their homes livable, deferring some of the less crucial projects, now they are feeling flush enough to indulge in some luxury," Hunter said.
Home improvement professionals participating in the index reported being busier in the second quarter than in the first quarter, and more than three-fourths expect their business revenue to grow this year.
Just released, the Houzz Q2 2017 Renovation Barometer also shows high demand for professional remodeling and renovation services across all sectors, with participants reporting a notable shift toward larger-scale and higher-end projects, as well as an increase over last year in clients undertaking multiple projects at the same time. Both remodelers and designers say they are seeing a higher level of inquiries, raising expectations for additional business in the months ahead.
The report finds a decline in kitchen and bath remodels as a portion of all projects (49 percent vs. 54 percent, respectively) compared to the second quarter of last year, but they continue to be the most commonly requested projects. Aging-in-place renovations again made up about one third of projects.
With its latest report, Houzz introduced a backlog index as a measure of demand for services. Across all sectors, professionals are reporting average backlogs of four to seven weeks, with general contractors/remodelers and design build firms having the longest average backlogs, at seven weeks. Designers, on average, are experiencing backlogs of around four weeks.
Overall, the report finds strong market conditions for home renovation professionals, with confidence levels holding steady as highly positive and trending upward heading into the third quarter.
Professionals' biggest concern at the moment is a shortage of skilled labor, which is preventing them from taking on more projects. Given the alternative, it's a problem they'd rather have than not.
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