Pro dealers whose companies cater to remodelers and replacement contractors can't be blamed if they're a bit confused about what direction this sector might be headed in 2006. Recent market data provided conflicting clues about just how strong remodeling is likely to be in the coming months.
The good news is that Americans' spending on renovations and additions rose 18 percent last year to $275 billion, according to Harvard University's Joint Center for Housing Studies in Cambridge, Mass. The not-so-good news is that, unlike new-home construction, whose boom has been a sustained national phenomenon, remodeling activity continues to be regional and less widespread. The Joint Center, in fact, notes that remodeling, as a percentage of total residential expenditures, fell to 38 percent last year from 47 percent in 1995.
The market picture wasn't much clearer as 2005 came to a close, either. Among the remodelers surveyed by the NAHB, which collates their responses in its ongoing Remodeling Market Index, remodeling activity in the fourth quarter was off slightly compared with the same period in 2004, and was down in three of the country's four geographic regions. Vince Butler, chairman of NAHB's Remodelors Council, attributes this decline to the impact of rising interest rates on homeowner refinancing to pay for renovations. Nevertheless, the survey projects that remodeling should pick up through the remainder of 2006. During the International Builders' Show in January, the NAHB predicted that remodeling expenditures would increase annually by 5 percent for at least the next few years.
A Demanding Customer There's certainly ample anecdotal evidence to support this rosier outlook. Window World, a North Wilkesboro, N.C.–based supplier and contractor with 145 branches in 40 states (and its first Canadian branch opening this spring), is anticipating another banner year after installing 660,000 windows in 2005, a record for the company according to its president, Todd Whitworth.
The Cincinnati Business Courier reports that a record 1,095 remodeling permits valued at $26.7 million were issued last year in the four counties that comprise northern Kentucky. And in California, pro dealer Golden State Lumber saw its sales of Marvin Windows—a popular brand among remodelers—triple in 2005, according to Golden State Lumber president Rick Zaslove.
American Canyon, Calif.–based Golden State serves towns like San Rafael where, says Zaslove, $1.5 million remodeling projects aren't unheard of. He acknowledges that remodelers can be “a different breed” of customer who demand special products and services. So over the years, Golden State has been adding to its selection in certain categories, like molding and kitchens, those products that remodeler-customers have either requested or buy frequently. That's been particularly noticeable in flooring, where remodeler demand has led Golden State to broaden its assortment considerably and even add a bamboo product for tiki huts and outdoor kitchens, which Zaslove says have become popular remodeling projects in his area.
NAHB's research vice president, Gopal Ahluwalia, believes that the kitchen will remain the most important room in the house over the next decade, especially in light of the trend among builders and remodelers to break down walls between kitchens and living quarters to create great rooms that open up a home's space. Ahluwalia doesn't expect house sizes, on average, to grow much larger than today's 2,300- to 2,500-square-foot average. But it appears that homeowners are doing more with what they have: Kermit Baker, a senior research fellow for the Joint Center, notes that remodeling projects that exceed $25,000 now represent 31 percent of remodeling expenditures, versus 16 percent a decade ago.
Is Consolidation Coming? Dealers looking to capture a bigger share of those expenditures face the challenge of selling into a market that is far more fragmented than the home-building sector. The 10 largest remodeling companies in the U.S. capture less than 5 percent of total expenditures, and nearly half of all remodeling companies specialize in only one or two product categories, according to Joint Center estimates; however, there have been indications that, at least to some degree, consolidation is creeping into the remodeling industry.
