Marking a record year for the remodeling industry, Americans spent an estimated $215 billion on residential remodeling in 2005, based on the National Association of Home Builders’ (NAHB) analysis of recently released third-quarter remodeling spending from the U.S. Census Bureau.
NAHB economists expect remodeling expenditures to grow by 13.2 percent, the largest increase in more than a decade, to a record $238 billion in 2006, analysts for the Washington, D.C.-based trade association said. Remodeling activity grew moderately in the first quarter of 2006, according to the latest in a series of NAHB Remodeling Market Indexes (RMI).
“The $11 trillion in homeowner equity continues feeding the remodeling market,” said Vince Butler, chairman of the NAHB’s Remodelors Council. “We see continued long-term growth in the industry.”
“Though the frenzy in home buying is slowing down, the remodeling spending associated with purchasing a home usually lags behind,” added NAHB Chief Economist Dave Seiders. “The run-up in home sales during the past five years will fuel remodeling growth for the next several years, and the long-term growth looks to be solid, as well.”
Baby Boomers (aged 46-64) accounted for the vast majority of remodeling work in this year’s first quarter, with 91 percent of remodelers providing service to this age group, according to the latest RMI issued by the Washington, D.C.-based NAHB. In addition, 26 percent of remodelers serviced “Gen X” (36-45 years old) clients, 2 percent serviced “Gen Y” (35 and under), and 13 percent serviced Seniors (65 and older), the trade association noted.
Continued strong activity in the residential remodeling sector is apparently serving to counterbalance a softening in the new construction sector as 2006 enters its second half.
Rising mortgage rates, deepening affordability issues and the retreat of investors/speculators from the marketplace are prompting single-family home builders to further “adjust their perspectives” on the new-home market, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for May, released last month. Reflecting a slide in builder confidence, the HMI declined six points from the previous month, to its lowest mark since mid-1995. “The pattern of movement in the HMI is not inconsistent with the orderly cooling-down process we’re projecting for home sales and single-family housing starts in 2006,” said NAHB Chief Economist David Seiders, who forecast new-home sales to be off by 12 percent, and single-family starts to be down about 7 percent, from the records they posted in 2005.
Existing home sales
After five consecutive years of booming sales, the pattern of sharp annual increases in existing-home prices is over, National Association of Realtors President Thomas Stevens said last month. “After five years of booming sales, we are now experiencing normal market conditions across most of the country,” said Stevens. “Inventory levels have come up to balanced levels between home buyers and sellers, so the pressure has come off of home prices and most owners can expect steadier gains in home values for the foreseeable future.” The Washington, D.C.-based NAR reported that total existing-home sales – including single-family, townhomes, condominiums and co-ops – slipped 2 percent, to a seasonally adjusted annual rate of 6.76 million units in April; they were 5.7 percent below the 7.17 million-unit pace reported in April of 2005, the NAR added. David Lereah, NAR’s chief economist, said the decline was “expected.”