After a disappointing first quarter, the remodeling industry bounced back in the second quarter of 2014, with notable month-over-month gains. Current projections indicate that trend will continue into the second half of the year, with the industry as a whole experiencing a substantial year-over-year increase.
Improved weather conditions, employment figures and home sales helped boost remodeling activity in the second quarter. All the major indexes reported increased activity.
The National Association of Home Builders' Remodeling Market Index (RMI) rose three points in the second quarter, to 56 — the fifth consecutive quarter that the RMI has read above 50, indicating positive market activity. In addition, NAHB's release states that the RMI's future market conditions index rose four points, with remodelers reporting increased calls for bids, amount of work committed for the next three months, backlog of jobs and appointments for proposals.
The National Association of the Remodeling Industry's Remodeling Business Pulse (RBP) likewise found an increase in all remodeling market indicators over the first three months of 2014. Current business conditions rose to 6.29 from 6.07 (on a scale from 1 to 9, with 5 indicating "same as last year").
Both conversion of bids and sales value of jobs were up as well. As with the RMI, the RBP shows signs of continued improvement, with remodelers reporting a bump in the number of inquiries and the number of bids for the second quarter.
Remodelers participating in the RBP were somewhat less optimistic about future business conditions than they were at the end of March, due in part to concerns about pricing and a shortage of skilled labor. However, observes Tom O'Grady, chair of NARI's Strategic Planning Committee, "market activity remains positively weighted, with only 8 percent of remodelers reporting any level of decline versus the 70 percent who are seeing some level of growth."
This quarter's Leading Indicator of Remodeling Activity (LIRA), prepared by the Remodeling Futures Program at the Joint Center for Housing Studies at Harvard University, also projects a strong second half for the industry — with the year ending on an annual growth rate of 9.9 percent, compared to 5.6 percent in 2013. Based on current conditions, analysts anticipate growth will peak in the third quarter and begin to taper off toward the end of the year.
"With the economy improving slower than expected and home sales struggling to keep up with last year's pace, the recent strong gains in remodeling spending will likely moderate later this year," commented Chris Herbert, research director at the Joint Center. The Joint Center projects growth in the first quarter of 2015 to slow to around 7 percent — still a significant improvement over this year.
Although home sales in recent months have varied by region, remodeling growth was fairly equal throughout the country, according to NARI. The Midwest showed the strongest growth in the second quarter, while the South posted the strongest rating for future growth conditions. People needing to do postponed projects and improving housing prices were the main drivers of growth, followed by signs of the recovering economy.
Both the National Association of Realtors and the NAHB are projecting upward trends in home sales and construction for the second half of the year. That should help sustain the demand for remodeling services well into the holiday season.
