Declines in owner spending on home improvements will moderate through the end of 2009 and first half of 2010 according to the Leading Indicator of Remodeling Activity (LIRA), released by the Remodeling Futures Program at the Joint Center for Housing Studies (JCHS) of Harvard University. The indicator suggests the remodeling industry is turning a corner. Annual spending levels should start to rise in the beginning of next year causing year over year declines to shrink to 8.9 percent by the second quarter of 2010.
“Remodeling spending by homeowners shows early signs of stabilization,” says Nicolas P. Retsinas, director of the JCHS. “While the housing recovery has been erratic, a strengthening economy could produce spending increases on home improvement projects by the second quarter of next year.”
Some positive signs for the industry are emerging. “Favorable financing costs — for those households with access to credit — and a pickup in homes sales are producing more opportunities for home improvement projects,” says Kermit Baker, director of the Remodeling Futures Program at the Joint Center for Housing Studies. Several factors, however, still impede remodeling growth. “A generally weak housing market with unstable prices, near record levels of foreclosures and other distressed sales are discouraging households from undertaking nonessential remodeling projects.”
Existing Home Sales
Big Rebound in September
Existing-home sales bounced back strongly in September with first-time buyers driving much of the activity, marking five gains in the past six months, according to the National Association of Realtors.
Existing-home sales — including single-family, townhomes, condominiums and co-ops — jumped 9.4 percent to a seasonally adjusted annual rate1 of 5.57 million units in September from a level of 5.10 million in August, and are 9.2 percent higher than the 5.10-million-unit pace in September 2008. Sales activity is at the highest level in over two years, since it hit 5.73 million in July 2007, the NAR says.
Lawrence Yun, NAR chief economist, said favorable conditions matched with a tax credit are boosting home sales. “Much of the momentum is from people responding to the first-time buyer tax credit, which is freeing many sellers to make a trade and buy another home,” he said. “We are hopeful the tax credit will be extended and possibly expanded to more buyers, at least through the middle of next year, because the rising sales momentum needs to continue for a few additional quarters until we reach a point of a self-sustaining recovery.”
Homeowners Wary of Contractors
Forty percent of Americans are very concerned about the trustworthiness of household contractors, according to a nationwide survey of 1,000 people sponsored by the Chubb Group of Insurance Companies.
“From our experience, more than 80 percent of crimes perpetrated against the affluent are committed by people in their inner loop, and about 35 percent of the contractors on whom we perform background checks have a criminal past,” said Douglas R. Kane, president of Risk Control Strategies, the security consulting firm through which Chubb is now offering background investigations on general contractors and subcontractors hired by its high-net-worth customers.
Fannie Mae, Freddie Mac Struggle
Fannie Mae and Freddie Mac, put into conservatorship by the government a year ago, have taken more than $96 billion from the Treasury in bailout money and may still need more, said Edward J. DeMarco, acting director of the Federal Housing Finance Agency (FHFA), in testimony before the Senate Banking Committee. FHFA is the federal agency which oversees the two government-sponsored enterprises (GSEs).
“In the first two full years of the housing crisis — from July 2007 through the first half of 2009 — combined losses at Fannie Mae and Freddie Mac totaled $165 billion. In the first half of 2009, Fannie Mae and Freddie Mac together reported net losses of $47 billion,” according to DeMarco.
Currently, 3.1 percent of Freddie Mac loans are seriously delinquent and Fannie Mae’s delinquency rate is 4.2 percent.