Until recently it was very hard for some remodelers to remember a time when leads for jobs were not in plentiful supply. But lately you’ve been reminded what a normal remodeling market feels like. Over the last 10 years, remodeling expenditures on owner-occupied homes has more than doubled, from $83.5 billion in 1997 to a $176 billion annual pace late last year. And that is what makes 2008 such an interesting year. The market is certainly off of its double-digit growth pace and might even fall back a bit, yet many remodelers feel relatively confident about their particular outlook.
Yes, there is a housing downturn, a mortgage-meltdown, and the overall economy is showing signs of sluggishness, but don’t tell that to the 58 percent of remodelers we surveyed last month. Of more than 500 respondents from 45 states, almost six in 10 said they expect their company revenue to increase between 5 and 10 percent this year. Another 32 percent said they expect revenues to be flat. Only 10 percent expect to be down 5 percent or more. These results are astonishing given the level of hand-wringing and concern in the media about the demise of the larger housing market. The truth is that while existing-home and new construction sales have slowed dramatically, the fall-off in remodeling isn’t nearly as severe.
According to the most recent Leading Indicator of Remodeling Activity (LIRA) put out by Remodeling Futures Program at Harvard University’s Joint Center for Housing Studies, remodeling activity began growing more slowly in the middle part of last year and will likely retrench at a 4 percent annual rate during the first quarter this year. In a discussion with the Joint Center’s Kermit Baker (see the full forecast story on pg. 30), we touched on the impact of lower home prices on a region-by-region basis. We also discussed the risk of a wider economic downturn this year. But in the final analysis, remodeling’s fundamentals — the demographics of household formation, reasonably low finance rates, and a good measure of home equity — are holding up.
“Yes. That is true. The fundamentals are all still reasonably positive, just not nearly as positive as they were. I think what you are getting at is what have we seen over the last four or five years. What is our reference point? And that for a lot of people has been double-digit house price growth,” says Baker alluding to a dampened consumer sentiment in some places. “In some markets there was 15 percent to 20 percent growth per year. And in that environment, even falling back to flat feels like a real dramatic shift.”
Remodelers will have to work harder and smarter in 2008 to achieve similar results to recent years, but remodeling is still a solid market.