New remodeling forecasts revised upward
Tuesday, March 10, 2020
Demand for remodeling services maintained momentum in the fourth quarter of 2019, with remodelers reporting average revenue gains a few notches above industry projections. That momentum is expected to carry over into the first half of this year, fueled by the recent uptick in activity in the housing market.
Although industry experts still foresee mainly moderate growth for 2020, they have revised their long-range forecasts slightly higher than those of the previous quarter.
In January, the National Association of Home Builders (NAHB) Remodeling Market Index (RMI) showed a jump of three points in the fourth quarter of 2019 compared to the previous quarter’s reading. The Houzz 2020 Q1 Renovation Barometer posted a two point quarter-over-quarter rise in remodelers’ business activity for the same period. More recently, MetroStudy announced its Residential Remodeling Index (RRI) reached a new high in the last quarter of 2019, up a half-percentage point from the previous quarter and 2.5% year-over-year.
That trend and the increased activity in the housing market during the same period have resulted in a somewhat brighter industry forecast for the year. The Joint Center for Housing Studies at Harvard University (JCHS) revised its first quarter Leading Indicator of Remodeling Activity (LIRA) growth projection of home remodeling expenditures from less than half a percentage point to 1.5% — not a huge shift, but a notable one.
MetroStudy now, too, foresees slightly higher annual growth in remodeling activity, at 2.6% in 2020 and 2021, up from its previous forecast of 2.2% and 2.4%, respectively. Again, this is well below the 5% gains of recent years but moves in a more positive direction.
For their part, remodelers are more optimistic than the economists. Members participating in the National Kitchen and Bath Association (NKBA) Q4 2019 Kitchen and Bath Market Index (KBMI), co-produced with John Burns Real Estate Consulting, reported increased activity in the quarter for an index reading of 69.8, compared to 64.3 for the previous quarter — the highest in three quarters. The future conditions portion of the index rose 8 points (77 vs. 69), and the score for industry health was the highest for the year.
Remodelers responding to the 2020 Houzz U.S. State of the Industry study indicated they expected a more substantial increase in average annual growth (7.6%), though less than in 2019. More than 6 in 10 expected higher profit growth year-over-year, and nearly 7 in 10 expected higher revenue growth.
It is worth noting, however, that remodelers in 2019 had projected an 8.7% annual growth rate, but ended the year with an average rate of 5.3%, with less than half (44%) reporting an increase. Still, 5.3% is higher than the average 3% annual growth rate industry experts had predicted.
Unlike some other industry professionals, when asked what their greatest business challenges for the year were, remodelers in the Houzz study mentioned the rising cost of doing business and a shortage of qualified laborers, but not attracting customers. All professionals mentioned the rising cost of materials and products. More than any other factor, keeping projects within a range homeowners can afford may have the biggest effect on remodelers’ bottom line this year.
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