Prospects for remodeling industry growth are already developing despite the current housing downturn, finds a new report released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University.
The Remodeling Market in Transition finds that in today’s uncertain economic environment, owners are likely to focus remodeling spending on projects that improve the energy efficiency of homes, generate cost savings, and maintain structural integrity. While signs suggest the industry is far from reaching bottom, the outlook anticipates the correction to be less severe than that of the home building industry. Key sources of future growth include the increasing demand for green improvements, upgrades to the nation’s aging rental stock, and the growing population of immigrant homeowners.
In most parts of the country, home prices are falling, discouraging discretionary home improvement spending and diminishing the amount of equity owners have in their homes. “Earlier this decade, the ability to borrow against equity created by rising home prices fueled remodeling activity, as well as broader consumer spending,” says Nicolas P. Retsinas, director of the Harvard Joint Center for Housing Studies.
While the rising number of properties in or at risk of foreclosure is also driving down remodeling activity, when housing markets recover, foreclosed properties will provide opportunities for home improvements, as banks and new owners renovate and repair these properties and state and local governments make use of the Housing and Economic Recovery Act of 2008, which allocated $4 billion for the redevelopment of abandoned and foreclosed properties.
The report also examines areas that will provide opportunities for increased remodeling demand. For example, the consumer shift toward energy-efficient products and systems will pave the way for green remodeling. The report demonstrates that maximizing energy efficiency in existing housing may be one of our greatest challenges, but also one of our greatest opportunities given that homes account for almost a quarter of energy consumption in our economy.
Existing rental housing and the growing number of immigrant homeowners will also help reverse this downturn in the remodeling industry. “Years of underinvestment have left the nation’s rental stock, at an average age of 36 years, in desperate need of improvement and repair,” says Kermit Baker, director of the Remodeling Futures Program, “And foreign-born homeowners, who currently account for more than 10 percent of home improvement spending, are heavily concentrated in their 30s and 40s, ages when families are growing and changing the use of their home.”
Strong Gain in December
Existing-home sales rose unexpectedly in December while inventory declined, led by a surge of sales in the West, according to the National Association of Realtors (NAR).
Sales — including single-family, townhomes, condominiums and co-ops — jumped 6.5 percent to a seasonally adjusted annual rate of 4.74 million units in December from a downwardly revised pace of 4.45 million units in November, but are 3.5 percent below the 4.91 million-unit pace in December 2007.
For all of 2008 there were 4,912,000 existing-home sales, which was 13.1 percent below the 5,652,000 transactions recorded in 2007. This is the lowest volume since 1997 when there were 4,371,000 sales.
Upgrading Replaces Trading Up
In spite of a difficult economic landscape, the desire to rebuild, remodel and reinvent the homestead remains a core part of consumers’ cultural DNA, says Robin Avni, senior director and lead consumer strategist with Iconoculture, a trend research firm.
Speaking at a media briefing sponsored by Pella Corp. at the International Builders Show (IBS) in Las Vegas, Avni observed, “Consumers consider their lives an ongoing improvement project, but they are now looking to live to the best of their abilities rather than beyond their means.”
For the next few years, the idea of upgrading an existing home will replace the concept of trading up. Avni predicted that even when market recovery gains momentum, the footprint for homes will continue to shrink, with an emphasis instead on personalized features and amenities.
“Building green will become more mainstream and less confusing as builders, contractors and consumers alike all get a better grasp of product potential and begin to see the value in ‘going green,’ ” she added.
Big Box RetailersHome Depot Exits EXPO Business
The Home Depot announced in January it will close its EXPO stores and several other businesses. The closings affect 34 EXPO Design Center stores, five YardBIRDS stores, two Design Center stores and a bath remodeling business known as HD Bath, with seven locations. These closings will impact approximately 5,000 employees in those locations, their support functions and their distribution centers.