2010: Heading for Recovery

Despite continued weakness in the overall U.S. economy, there is a growing sense among remodelers that 2010 will be a better year than 2009. In Qualified Remodeler’s annual survey of remodelers, 49 percent said they expect their business to grow by at least 5 percent in the coming year with fully two-thirds of respondents (66.2 percent) saying they expect revenues to be flat or better.

Perhaps most telling has been the increase in the percentage of remodelers who expect their business to grow by 10 percent or more. A year ago, only 13.4 percent were willing to venture into these optimistic waters. This year, when asked the same question, the number is nearly a quarter — 24.2 percent — of all respondents.

The cause for optimism seems to be almost entirely rooted in a predicted improvement in their local markets for remodeling activity as opposed to better results due to planned increases in marketing and other strategic changes to their businesses, though these are also factors. More than 75 percent of remodelers say their local market for remodeling activity will be flat or better, and 42.3 percent see an outright increase in remodeling activity in their local markets this year.

What types of projects will drive that activity?

According to remodelers who answered our forecast survey, kitchen and bath remodeling is still the single strongest category of remodeling projects followed by maintenance-and-repair projects, exterior projects and room remodeling. The numbers also predict significant growth in the level of green remodeling and energy-audit based remodeling projects. Both ranked higher than insurance restoration, basement projects, universal design or aging-in-place remodels as well as historic restoration projects.

This is not surprising. A biennial report issued by Harvard University’s Joint Center for Housing Studies in February pegged green remodeling as one of three areas of the remodeling market (along with rental housing remodeling and immigrant-based demographics) that will spur the growth in remodeling in the decade ahead. Kermit Baker, the director of the Remodeling Futures program at the Joint Center, says that green remodeling is the place to be in the short term. Qualified Remodeler sat down with Baker and asked about the year ahead.

QR | Are the conclusions from the February report holding up well?
BAKER | As you know, there is not a lot of data (about remodeling activity), so I am going to have to rely on anecdotes for how well it has held up. The energy-efficiency and green-based activity still looks like it is a great spot. It is a remodeling niche that has held up very well. The rental remodeling market, short-term, has not held up well. It turns out that all of the overbuilding on the owner occupied single-family side swamped the rental stock in the short term. It is not moving forward yet because of the temporary excess inventory. The third growth driver identified was immigration and, sort of like the rental side, it is an important area of demand moving forward. But in this recession, even the immigration numbers have slowed quite dramatically. That being said, the trend has unfolded over the last 20 years, so it is certainly going to be a factor long-term.

QR | If you had to pick a month when the remodeling market hit, or will hit, bottom, which would you choose?
BAKER | Well, it is difficult. According to our Leading Indicator of Remodeling Activity (LIRA), we think that is happening this quarter (4Q 2009) or next quarter (1Q 2010).

QR | Are the projections from the indicator holding up?
BAKER | It looks like it is going to start climbing slowly back in 2010 and I think that is a reasonable scenario. Our projection looks like 2010 is going to be the mirror image of 2009. In 2009, we saw the market weaken as the year progressed and in 2010, I think we will see the market strengthen as the year progresses. And I am guessing that, in terms of overall activity, 2010 is going to just about equal 2009. Year-over-year, we will see almost no growth. What that means is that every quarter we will see incremental growth the same way we saw this industry step down in 2009.