Remodeling Poised for More Growth

Existing-home sales in most states were down from year-ago levels in the fourth quarter of 2006, “marking the likely bottom for the current housing cycle,” according to the latest in a series of quarterly surveys by the National Association of Realtors. Total existing-home sales were at a seasonally adjusted annual rate of 6.24 million units in the fourth quarter of ‘06, down 10.1 percent from a 6.94 million-unit level in the fourth quarter of 2005, the Washington, D.C.-based NAR said. However, even with the general decline, six states showed increases in the sales pace from a year ago and one was unchanged, the association pointed out. According to David Lereah, NAR’s chief economist, it appears the fourth quarter of ’06 “was the bottom for the current housing cycle. Home sales are leveling at historically high levels, and (current figures reveal) home prices are stabilizing, Lereah said. When we get the figures for this spring, I expect to see a discernable improvement in both sales and prices.”

Residential remodeling

Spending on home improvements by homeowners is expected to increase at a 3.7 percent inflation-adjusted compound annual rate over the next decade — significantly slower than in recent years — according to a new report released by the Remodeling Futures Program of the Joint Center for Housing Studies. After strong growth earlier this decade, when low financing costs and strong returns to house values, encouraged upper-end remodeling projects, spending reached $280 billion in 2005, according to the Cambridge, Mass.-based Joint Center. The remodeling industry, however, has softened recently. “The 2006 slowdown in the broader housing sector was reflected in the remodeling industry, with many homeowners putting their improvement activity on hold until the market stabilizes,” said Nicolas Retsinas, director of the Joint Center. “When the industry emerges from its current slowdown, investments in older homes that missed the last round of home improvements, the desire for energy-efficiency retrofits and growing pressure to upgrade the rental stock will ensure a healthy recovery,” Retsinas added. “Remodeling expenditures are likely to continue to stagnate until homes sales begin to pick up.” Increases in the numbers of households and in per household expenditures on home improvements, especially as the high-end market segment returns, ensures solid growth in remodeling activity over the coming decade, the Joint Center noted (see related graphic on the right).

HOUSING MARLET

Homeownership still rising

See related graphic on the right (second from the top).

CONSUMER TRENDS

Energy-efficiency top reason for window demand

A survey of almost 2,000 consumers showed that 77 percent of respondents indicated having Energy Star-rated windows in their home was either “extremely important or important” to them.

In the same survey, conducted by Simonton Windows, consumers were asked the question, “If you could replace your windows tomorrow, what would be the main reason motivating you?”

  • 70 percent — want windows with more energy efficiency
  • 17 percent — want windows that are easier to maintain
  • 13 percent — want windows that are more secure

Simonton officials said the high interest by consumers in energy efficiency, found in this survey, match up with a similar study Simonton conducted with a national home improvement television show last year.

More than 13,600 respondents participated in a survey conducted by Ventura Associates, Inc. in June of 2006. When questioned on what was the single most important quality of their windows, 66 percent of respondents answered “energy efficiency.” And, when asked how important it was to them that their windows were Energy Star qualified, 88 percent of respondents answered either “extremely important” or “important.”

Consistency of consumer interest in energy efficiency was evident in the Ventura Associates survey. In an uncanny similarity to the national radio show survey, the answers came in as:

  • 69.5 percent — want windows with more energy efficiency
  • 12.6 percent — want windows that are easier to maintain
  • 9.5 percent — want impact-resistant windows to protect their home
  • 8.4 percent — want a newer, updated look to their windows

HOME PRICES

Government data stays flat

The rate of home price appreciation in the U.S. remained steady in the fourth quarter of 2006, extending a general trend of deceleration begun earlier in the year. Home prices, based on repeat sales and refinancings, were 1.1 percent higher in the fourth quarter than they were in the third quarter of 2006. This is slightly above the revised growth estimate of 1.0 percent from the second to the third quarter. Prices in the fourth quarter of 2006 were 5.9 percent higher than they were in the same quarter in 2005.

Price appreciation in 2006 was substantially smaller than the tremendous price gains of recent years, which ranged from 7.4 percent in 2002 to 13.2 percent in 2005.

House prices grew faster over the past year than did prices of non-housing goods and services reflected in the Consumer Price Index. House prices rose 5.9 percent, while prices of other goods and services, excluding shelter, rose 0.9 percent.

Highest and lowest appreciation

The Metropolitan Statistical Areas (MSAs) with the greatest rates of appreciation between the fourth quarter of 2005 and the fourth quarter of 2006 were: Bend, Ore. (21.4 percent), Wenatchee, Wash. (20.9 percent) and Provo-Orem, Utah (19.9 percent). The MSAs with the lowest rates of appreciation for the same period were: Kokomo, Ind. (-5.3 percent), Santa Barbara-Santa Maria-Goleta, Calif. (-4.2 percent) and Jackson, Mich. (-3.9 percent).

Of the 282 cities on OFHEO’s list of “ranked” MSAs, 256 had positive four-quarter appreciation, 25 had price declines, and prices were unchanged in one city.


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