Re-benchmarked LIRA Declines

The weak economy and further distress in housing markets are impeding remodeling activity according to Harvard’s Joint Center for Housing Studies. The Leading Indicator of Remodeling Activity (LIRA) reports that homeowner improvement activity will continue to decline, falling by an annual rate of 11.1 percent by the first quarter of 2009.

This quarter’s LIRA report differs significantly from previous reports in that it takes into account only homeowner improvement activity and no longer factors in maintenance and repair activities, a significant segment of the remodeling market. Spending by homeowners on maintenance and repairs — as well as spending on improvements and maintenance and repairs for rental and vacation property — are no longer included in the LIRA figures.

The re-benchmarking was necessitated by the recent discontinuation of the U.S. Census Bureau’s Residential Improvements and Repairs Statistics, also known as the C-50 series. The LIRA now projects future trends in homeowner improvement activity based on the bureau’s C-30 series, which focuses on improvement spending only.

“The slumping economy and struggling housing sector continues to drag down spending on home improvements,” notes

Nicolas P. Retsinas, director of the Joint Center for Housing Studies. “Households are reluctant to undertake major improvements in the context of falling prices.”

“Our re-benchmarked leading indicator focuses on homeowner improvements, and these projects have been particularly hard hit by the housing downturn,” remarks Kermit Baker, director of the Remodeling Futures Program of the Joint Center.

“Weak home sales and a growing inventory of unsold homes have discouraged upper-end remodeling activity in many areas.”

The improvement estimates of the C-50 and C-30 are fairly comparable since both studies draw from the same government survey, notes a recent JCHS newsletter. At the same time, the annual rate of change for the C-30 is less erratic than the C-50 because the Census Bureau uses smoothing and adjustment techniques to fit quarterly survey data to a monthly series.

The C-30, JCHS notes, appears to be somewhat more cyclical than the C-50 since “discretionary spending tends to be more volatile compared to the more routine and less costly expense of maintenance and repair activity.” |

Energy Solutions

Homeowners Ask Remodelers

More homeowners are turning to remodelers for money-saving solutions, according to the results of the National Association of Home Builders’ (NAHB) quarterly Remodeling Market Index (RMI). Thirty-three percent of surveyed remodelers report that they are increasingly called on to improve the energy efficiency of their clients’ homes.

According to the survey, remodelers have installed a number of efficiency-enhancing products in recent months, including:

  • Windows: 73 percent of surveyed remodelers installed more energy-efficient windows that are insulated to prevent outdoor heat exchange.
  • Insulation: 65 percent made upgrades such as insulation replacement and spraying foam or fiber insulation into enclosed walls and roof cavities, while 27 percent insulated foundations and 52 percent installed insulated exterior doors.
  • High-efficiency HVAC systems: 56 percent
  • High-efficiency kitchen appliances: 47 percent
  • Water-saving faucets and fixtures: 46 percent

New Housing

Builder Confidence Declines

Builder confidence in the market for newly built single-family homes fell for a third consecutive month in July, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. The HMI fell below its previous record low of 18 in June to a new record low of 16 in July, with each of its three component indexes also hitting record lows.

“Builders are reporting that traffic of prospective buyers has fallen off substantially in recent months,” said NAHB Chief Economist David Seiders. “Given the systematic deterioration of job markets, rising energy costs and sinking home values aggravated by the rising tide of foreclosures, many prospective buyers have simply returned to the sidelines until conditions improve,” he said.

Each of the HMI’s component indexes fell to new record lows in July. The index gauging current sales conditions declined one point to 16, the index gauging sales expectations in the next months fell four points to 23, and the index gauging traffic of prospective buyers also receded four points, to 12.

Real Estate

Home Buyers Hopeful

An online survey of potential home buyers found that 44 percent believe the real estate market will improve once the new president takes office.

In the meantime, 81 percent say they remain nervous about the current market.
Respondents cite a variety of barriers to buying a home: 28 percent say they are stymied by the cost of a down payment; 20 percent are concerned about their income level; and 31 percent (39 percent in the West) say home prices are still too high.
Practical reasons motivate these potential buyers. A quarter say they need more space; 17 percent have gotten married, had a baby or experienced some other life-stage change; while 9 percent want to downsize.

Seventy-eight percent say they are willing to save or earn extra money for the down payment and are willing to compromise on amenities in their new home to make it more affordable.

Harris Interactive conducted the survey for Move Inc., which operates Move.com and Realtor.com.

Consumers

Investing in Remodeling

While the housing market may be slowing, millions of Americans are still investing in their homes with remodeling projects, and three types of homeowners show definite patterns in their home improvement spending.

In its second PersonicX Consumer Dynamics study, Acxiom Corp. researchers identified three groups of homeowners who were more likely to undertake remodeling projects in a slumping economy: Starter Homes, Settled In and In for the Long Haul.

Harvard’s Joint Center for Housing Studies’ Leading Indicator for Remodeling Activity (LIRA) showed falling consumer confidence and a weak economy as growth inhibitors for home improvement purchases. Its April 2008 report predicted that homeowner spending for remodeling will continue to decline, falling by an annual rate of 4.8 percent through the end of the year.

“But all the groups we identified are more than twice as likely as the rest of the population to spend money — at least $7,500 per year — on home improvements,” Rolleigh said. He also noted that all three groups reside predominantly in suburbs and towns and have net worth listings that indicate a range of assets not limited to their homes. “These results are exciting,”

Rolleigh said. “We have identified 13 percent of the U.S. population — almost 17 million households — who are consumers still willing and ready to spend money on their homes.”

The first group, Starter Homes, comprise those more likely to have been in their homes for fewer than five years. These consumers are usually between 30 and 45 years old, and if they have children, they had them relatively later in life so that their kids are in preschool or younger — though many are still childless.

“Those in the Starter Homes group tend to focus on quick turn-around projects that provide upsell potential to their homes,” Rolleigh said. He said PersonicX researchers found that these remodelers tend to spend their money on cosmetic changes like replacing dated light fixtures, updating faucets and installing new kitchen cabinets.

Settled In, the second group identified by consumer researchers, are those who are more likely to have been in their homes six to 14 years and are slightly older than Starter Homes, from 36 to 55 years old. They often have children (teens or preteens) and are involved with their activities. They, too, enjoy sports, exercise regularly and are Internet junkies.

Rolleigh said households in this segment are ready to tackle larger, more complex projects, making upgrades to their homes for more comfort and accommodation of their family’s lifestyle. They are more likely to install a hardwood or ceramic floor or remodel a bedroom, or even take on a bigger kitchen remodeling project.

And those in the In for the Long Haul segment are more likely to be rolling up their sleeves to take on the more expensive maintenance projects required as a home ages, replacing gutters or roofing and tackling concrete or masonry projects. They also may take on improvements to the interior of the home.

Those in the Long Haul group are more likely to have been in their homes for 15 years or more and are 46 to 65 years old. These homeowners are savvy investors, enjoy boating and gardening, and participate in business and civic clubs.

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