Harvard Indicator Shows Softening

Through the third quarter of 2006, homeowner remodeling spending continued to show signs of easing. According to the Remodeling Activity Indicator (RAI) devised by Harvard’s Joint Center for Housing Studies, homeowners spent an estimated $160.5 billion on home improvements and repairs over the past four quarters, representing only a 1.6 percent increase compared to the previous four quarters.

“The softening housing market, including a reduced volume of home sales, has contributed to slowing expenditures on home improvements by homeowners. As sales continue to fall, remodeling expenditures will continue to slump,” states Nicolas P. Retsinas, director of the Joint Center for Housing Studies.

“In recent quarters, the remodeling indicators have been mixed. In the third quarter, however, all of the components of the RAI point to either slower growth or decline. This suggests that the industry has not yet hit bottom, so we should see a further slowdown in the coming quarters,” remarks Kermit Baker, director of the Remodeling Futures Program of the Joint Center.

The RAI is released quarterly (April, July, October and January) by the Joint Center’s Remodeling Futures Program during the third week after each quarter’s closing — generally about two quarters before the U.S. Commerce Department’s data on residential improvements and repairs is available — in order to provide the industry with an accurate and timely reading of national remodeling activity levels.

Kitchens & Baths
Cabinet and Vanity Demand Moves Higher

U.S demand for cabinets, led by products used in residential kitchens, has been forecasted to increase 3.1 percent per year through 2010, to a total market of $16.4 billion. The forecast — issued last month by The Freedonia Group, Inc., a Cleveland, Ohio-based industry market research firm — notes that residential construction will continue to dominate the cabinet industry through 2010, and that kitchens remain, by far, the leading location for cabinets (see related graph, on right).

Although the residential sector will be restrained by a weaker new housing environment, “this will be offset somewhat by ongoing changes in home design that encourage the use of cabinets, and by the growing popularity of special-function rooms,” The Freedonia Group said. The research firm predicted that total cabinet demand (including price increases) will rise 3.1 percent a year between 2005 and 2010 — down from the 5.2 percent growth rate between 2000 and 2005. Total demand is expected to rise from $14 billion in 2005 to $16.4 billion in 2010.

“Building design trends that lead to greater cabinet use per residence will boost new residential cabinet demand and help offset a decline in single-family housing completions,” researchers observed. “Additionally, stronger expenditures for residential improvement and repair projects, which are the single largest end use for cabinets, will bolster demand. Changing consumer preferences in cabinet design and various demographic factors — such as an aging U.S. population that has the financial wherewithal to finance renovation projects — will also aid demand.” The cabinet industry will also benefit from a continuing trend toward using more cabinets to provide increased utility, the Freedonia study noted, adding that the rising use of cabinets in other rooms of the home (for example, laundry rooms, home offices and media rooms) will also fuel increases.

Remodelor™ of the Month

Allan Lutes, GMB, CGR, CR, GRI
Alpha Remodeling, Ann Arbor, Mich.

The Remodelors Council of the NAHB recently named Allan Lutes its Remodelor of the Month for November 2006.

Since 1989, when Lutes opened a property management business primarily to serve the needs of fraternities and sororities at the University of Michigan, Alpha has grown to be a premier full-service, design/build remodeling firm serving the Ann Arbor Area. Today, the company is a perennial Top 500 company and has incorporated many industry-leading best practices into its operation.

For example, the company adheres to a strict regimen of customer satisfaction surveys during both the design and construction parts of the process. Response is high due to survey discounts offered to its client. The resulting data is then fed back into the process to address problems. In terms of marketing, the company opened a showroom in the late ’90s and has incorporated an Open House program that allows clients to invite their friends and neighbors to see their finished project. In addition, clients are given a single point of contact throughout their project — one person who represents the designer, project manager and lead carpenter who are assigned to each project.

The result of these efforts and others has enabled the company to grow its gross revenues by 31 percent over the past five years using the same number of employees — an enviable accomplishment for any company.

Lutes, like all monthly honorees, is deeply involved in his local community and industry. He is the local Remodelors Council chairman and serves on many community boards of directors. In 2006, Lutes coordinated and participated in the first-ever Labor of Love project in Livingston County, Mich. He brought together 125 volunteers to complete three charity refurbishing projects. They painted the home of a wheelchair bound resident; they put siding on a 100-year-old home owned by a financially-challenged member of the community; and they built a ramp to provide needed access for another disabled member of the community.

Says Lutes, “This was a first effort of its kind in Livingston County, and the overwhelming response has guaranteed the same program in the spring of 2007.”