Supplying remodeling projects has kept many pro dealers' heads above water during the housing recession. As a percentage of total annual residential investment, remodeling jumped from less than 40% in 2005 to 70% last year, when it approached $300 billion. And with housing starts projected to increase only modesly through 2011, dealers could be relying on their remodeling customers to carry them for the foreseeable future.
The good news is that remodeling and repair expenditures–which averaged $2,085 per home nationwide in 2010, according to National Association of Home Builder (NAHB) estimates–are expected to show relatively healthy growth over the next several years. The Joint Center for Housing Studies at Harvard University estimates that, from 2010 through 2015, annual household spending on remodeling will increase by an average 3.5%, rebounding from a negative 1.4% annual rate from 2005 through 2010.
In an ironic twist, foreclosures, which have been wreaking havoc on the housing sector, are turning out to be one of the engines driving remodeling activity. The Joint Center finds that buyers of distressed properties–which continue to dominate existing home sales–are consistently outspending buyers of non-distressed homes on remodeling one year after their purchases. Another engine is rising buyer demand for energy efficiency: In a survey it conducted last year, the Joint Center found that remodelers each quarter increasingly reported working on energy tax credit projects, which included retrofitting a building's envelope, upgrading or replacing HVAC systems, and to a lesser degree installing renewable energy systems.
It's worth noting, though, that 31% of all annual remodeling spending is concentrated in 10 markets, and more than half is in just 35 markets, said Kermit Baker, a senior research fellow for the Joint Center, who presented the organization's latest findings at the International Builders' Show (IBS) in Orlando in January.
To get their share of this pie, it's critical for dealers everywhere to understand what projects their remodeler-customers are working on or gravitating toward, and to make appropriate adjustments in product mix and services. Each quarter, NAHB polls its remodeler-members on business conditions. Based on more than 400 responses, NAHB found that remodelers' pessimism is abating, particularly about prospects for major (i.e., $25,000 or above) additions and alterations, and for anticipated calls for job bids (Nearly two-fifths of remodelers polled say their customers are getting multiple bids for projects "always" or "nearly always.")
However, among the more common projects done by remodelers, the big three–kitchens, baths, and room additions–were down significantly as portions of remodelers' total business between 2006 and 2010. Meanwhile, "handyman services" rose over that same period to 33% from 20%. "What you're seeing is an attempt to survive," observed Paul Emrath, NAHB's vice president of survey and housing policy research, who presented the latest data at IBS.
Emrath diverged from the Joint Center's prognosis when he raised questions about the sustainability of remodeling for energy efficiency. Back in the third quarter of 2009, NAHB found that three-fifths of remodelers polled were getting at least some business from energy tax-related projects.
Emrath now wonders whether a watered-down Existing Home Retrofit Tax Credit will continue to be enough of an incentive to homeowners. The bill that extended this credit through 2011, which President Obama signed on Dec. 17, reduced the credit to 10% of the cost capped at $500, from 30% of the cost capped at $1,500.
On the other hand, the tax credit for wind, solar, geothermal and fuel cells will stay at 30% of the cost of installation through 2016.