the remodeling market - builders' show · source: jchs tabulations of the home improvement...

JOINT CENTER FOR HOUSING STUDIES

Graduate School of Design | Harvard Kennedy School

Harvard University

Copyright 2009

www.jchs.harvard.edu

The Remodeling Market

Kermit Baker

Remodeling Futures Program

International Builders Show

January 21, 2010


Harvard University




Harvard University

Copyright 2009


Remodeling Market Issues

1. Where do we stand in the remodeling cycle at present?

2. What households demographic groups and areas of the country look to have the most upside for growth in remodeling spending?

3. Which remodeling segments are doing the best at present, and why?

4. Remodeling market outlook – what’s the evidence of an emerging recovery?



Harvard University

Copyright 2009

Remodeling Spending Market Has Fallen Almost 25% From 2007 High

108 121136

162 172

231

274

207

4140

44

4857

49

52

39

149161

180

210229

280

326

246

$0

$50

$100

$150

$200

$250

$300

$350

1995 1997 1999 2001 2003 2005 2007 2009(e)

Owner-occ. homes Rental units

Billions of dollars

Sources: JCHS tabulations of the 1995-2007 American Housing Surveys (AHS) and the US Department of Commerce Survey of Expenditures for Residential Improvement and Repairs (C-50 reports). 2009 estimate base on JCHS LIRA.



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Copyright 2009

Homeowner Improvement Spending Continues to Trend Down, But Downturn is Moderating

Source: U.S. Census Bureau

Four-Quarter Moving Rate of Change for Owner Spending on Home Improvement Projects

-0.1%

-4.0%

-8.8%

-6.1%

-5.4%

3.1%

14.8%

10.6%

6.8%

-11.1%

-14.0%

-16.1%

-13.6%

16.0%

17.6%

-20%

-10%

0%

10%

20%

2006-

1

2 3 4 2007-

1

2 3 4 2008-

1

2 3 4 2009-

1

2 3



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Copyright 2009

Remodeling Firms Payrolls Have Been Declining, and May Be Near Bottom for This Cycle

Source: US Bureau of Labor Statistics

Employees at residential remodeling firms; % change from year ago

-2.9%

-4.7%-3.8%

-9.5%-8.5% -9.0%

1.3%

8.9%

7.6%

1.0%

-7.8%

-5.7% -6.1%-6.7%

7.4%

5.8%

-15%

-10%

-5%

0%

5%

10%

15%

2006-

1

2 3 4 2007-

1

2 3 4 2008-

1

2 3 4 2009-

1

2 3 4(e)



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Copyright 2009

Remodeling Market Trends: Positives

National economy and industry fundamentals improving;

Opportune time for remodeling - lower project costs and quicker scheduling;

Incentives for energy conservation (e.g. energy tax credits; cash for caulkers) generating more “green” remodeling;

Deferred investment in homes, particularly for distressed properties;



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Copyright 2009

Remodeling Market Trends: Challenges

Job market remains weak, high unemployment;

Lower levels of home equity, continued credit restrictions;

Cost recovery falling for most types of home improvement projects;

New EPA lead paint rules;



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Copyright 2009

With Booming Stock and Housing Market, Wealth Doubled Between 1995 and 2007

135

222

286

368

369

419

12296

7465

0

100

200

300

400

500

600

1995 1998 2001 2004 2007

Non-housing

Housing

Average household net wealth, 000s of 2007$

Sources: 1995-2007 Survey of Consumer Finances, Federal Reserve Board.

287

360

464

491

554



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Copyright 2009

33

93

160

184

216

135

0

50

100

150

200

250

Under 35 35-44 45-54 55-64 65+ All Owners

Age of Head

Average household net housing wealth, 2007, $000s

Source: 2007 Survey of Consumer Finances, Federal Reserve Board.

Older Homeowners Benefited From the Long Run-Up in House Prices



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Copyright 2009

49

73

106

309

135

0

50

100

150

200

250

300

350

Lowest Quartile Second Quartile Third Quartile Highest Quartile All owners

Income

Average household net housing wealth, 2007, $000s

Source: 2007 Survey of Consumer Finances, Federal Reserve Board.

Likewise Upper-Income Households Benefited the Most from the Run-Up in House Prices



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Copyright 2009

Higher Valued Homes Didn’t Rise as Fast During the Boom, and Haven’t Fallen as Far

100

150

200

250

2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1

Low Tier

Middle Tier

High Tier

Index, January, 2000=100

Notes: House values for tiers: Low - under $289,467; Middle - $289,467-$449,392; High -over $428,000. High value for tiers: Low - Aug. 2006; Middle – Jul. 2006; High – Jul. 2006; Overall – Jul. 2006.Source: S&P/Case-Shiller Home Price Indices.



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Previously Overheated Markets Have Typically Seen the Steepest Price Declines…

Note: Change in sales measured over past 12 months (2008Q3~2009Q3). Sample includes 50 largest metropolitan areas defined by total housing units.

Sources: NAR Real Estate Outlook; Moody's Economy.com Estimates of Total existing single-family home sales (SAAR)

Of 50 largest metro areas in U.S., top and bottom 10 for house price changes over past year



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…Which In Turn Often Have Produced the Greatest Increase in Home Sales Recently

Note: Change in sales measured over past 12 months (2008Q3~2009Q3). Sample includes 50 largest metropolitan areas defined by total housing units.

Sources: NAR Real Estate Outlook; Moody's Economy.com Estimates of Total existing single-family home sales (SAAR)

Of 50 largest metro areas in U.S., top and bottom 10 for home sale changes over past year



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Tracking Recent Home Improvement Trends: NPD/HIRI Monthly Consumer Sentiment Index

National monthly survey of about 13,000 households (9,000 homeowners) on home improvement plans, with data released early the following month;

Number of planned projects, estimated cost, DIY/pro installation, and expected financing information collected;

Over 150 home improvement, maintenance and repair, and lawn and garden categories covered each month in survey;



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Planning Remodeling Spending by Owners Still Below Year-Ago Levels, but Pace is Moderating

Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; December figure based on November and December data only.Source: JCHS tabulations of the Home Improvement Research Institute’s monthly Consumer Sentiment Tracking Study, Feb. 2008-Dec. 2009.

Three month moving averages compared to year-ago level for planned spending

-11.4% -11.7%

-12.7%

-13.4%-13.9%

-14.5%-14.4%-14.0% -13.9%

-18.8%

-20%

-15%

-10%

-5%

0%

Mar Apr May Jun Jul Aug Sep Oct Nov Dec (e)



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Three month moving averages compared to year-ago level for spending for planned home improvement projects by income


Planned Spending Recovering Faster for Upper-Income Owners

-30%

-20%

-10%

0%

10%

20%

30%


Under $45K

$100K+

All



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Copyright 2009


…And Also for Less-Leveraged Seniors

Three month moving averages compared to year-ago level for spending for planned home improvement projects by age of respondent

-40%

-20%

0%

20%

40%

60%

80%

100%


Under 35

65+

All



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Copyright 2009


Spending on Professionally-Installed Projects Recently Doing Better Than Do-It-Yourself

Three month moving averages compared to year-ago level for spending for planned home improvement projects

-25%

-20%

-15%

-10%

-5%

0%


Pro

DIY

Total



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With Ongoing Credit Restrictions, Cash Financing of Projects Becoming More Popular


-25%

-20%

-15%

-10%

-5%

0%

5%


Cash & Own Funds

Loans

Gifts & Other

All Projects



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Though Volatile, Planned Exterior Replacement Projects Losing Momentum



-25%

-20%

-15%

-10%

-5%

0%

Mar Apr May Jun Jul Aug Sep Oct Nov Dec

(e)

Additions and remodels

Exterior replacements

All Projects



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Copyright 2009

Leading Indicator Points to Cyclical Low in Current Quarter with Gains Through Year

Source: Joint Center for Housing Studies.

Homeowner Improvements

Four-Quarter Moving Totals, Billions of $

Four-Quarter Moving

Rate of Change

$144.9 $145.8 $146.2

$144.2

$139.1

$133.0

$125.7

$121.0$120.1

$118.2 $118.1

$114.5

$109.7

$103.9

$107.7

$110.9

10.6%

6.8%

3.1%-0.1%

-4.0%

-8.8%

-14.0%-16.1%

-3.1%

-8.8%-12.0%

-8.7%-5.4%

-6.1%

-11.1%-13.6%

$100

$105

$110

$115

$120

$125

$130

$135

$140

$145

$150

4 2007-1 2 3 4 2008-1 2 3 4 2009-1 2 3 4 2010-1 2 3

-30%

-20%

-10%

0%

10%

20%

30%

40%

US Census Bureau LIRA



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Evolving Industry Structure – How Contractors have Fared During Downturn

Number of firms

Optimal size of a contracting firm

Performance by specialization.



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Contractor Revenue Growth Has Been Very Volatile in Recent Years

7.4%8.4%

4.7%

8.0%8.7%

3.1%

-3.8%

5.1%

10.2%

-5%

0%

5%

10%

15%

2000 2001 2002 2003 2004 2005 2006 2007 2008

Median annual change in remodeling revenue, top 500 remodeling contracting firms

Note: Analysis includes remodelers reporting revenue in any two consecutive years and ranking in the top 400 in at least one of those years.Source: JCHS tabulations of Qualified Remodeler magazine’s Top 500 contractors.



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Contractor Specialties Exhibit a Lot of Volatility

3.1%2.0%

3.2%

5.0%

2.7%

12.0%

-3.8%

-8.7%

-7.4%

-4.8%

-3.1%

4.6%

-10%

-5%

0%

5%

10%

15%

All Design/

Build

Full-Service K & B Ext.

Replace.

Ins.

Restor.

2007

2008

Median annual rate of change in revenue, top 500 contractors

Note: Analysis uses firms reporting revenue in 2007 and 2008 that were ranked in the top 400 in at least one year.Source: JCHS tabulations of Qualified Remodeler magazine’s Top 500 contractors.



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15.617.1

54.4 124.5

17.2

5.4

$0

$10

$20

$30

$40

$50

$60

Full-Service Replacement Insurance

Restore.

Full-Service Replacement Insurance

Restore.

$0

$20

$40

$60

$80

$100

$120

$140

Revenue Ave. Job Size

2008 firm revenue (millions $)

Source: Remodeling Magazine, 2009 Remodeling 550.

Among Largest Firms, Replacement Contractors Have Greater Scale; Smaller Projects

2008 avg. project size, (000’s)

Median revenue and project size of top 10 contractors in each category



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Copyright 2009

Summing Up: The Remodeling Outlook

Remodeling industry still recovering from housing downturn; economic recession; and significant loss of home equity wealth.

Many previously overbuilt markets have seen significant price declines, which are now seeing a rebound in sales.

Remodeling consumers/sectors recovering fastest: Seniors

Upper-income

Smaller cash projects

Home improvement recovery looks to get underway during current quarter.

the remodeling market - builders' show · source: jchs tabulations of the home improvement...

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