In the wake of the worst downturn in recent history, the U.S. home-improvement industry is primed for growth, a report issued by the Joint Center for Housing Studies at Harvard University concludes.
“As both the economy and the housing market stabilize, so too will homeowner improvement spending,” said Abbe Will, a researcher with the Remodeling Futures Program at the Joint Center for Housing Studies. In the coming years, remodeling expenditures are expected to increase at an inflation-adjusted average annual rate of 3.5%--below the pace recorded during the housing boom of the part of the first decade of the 2000s, but up sharply from the recent downturn.
“A New Decade of Growth for Remodeling” is the sixth and latest report in the “Improving America’s Housing” series published by the Remodeling Futures Program.
The industry, which saw a double-digit decline since its peak in 2007, is beginning to return to a more typical pattern of growth, the report concludes. Market fundamentals—the number of homes in the housing stock, the age of those homes, and the income gains of homeowners making improvements—all point to increases in remodeling spending.
“Metropolitan areas with rising house prices, older housing stocks, higher incomes and home values, and a larger share of upscale remodeling expenditures, such as Boston, San Francisco, and Los Angeles, are well-positioned for an upturn in remodeling activity,” said Eric Belsky, managing director of the Joint Center for Housing Studies.
In the next five years, the focus of remodeling spending will shift from upper-end discretionary projects to replacements and systems upgrades, the report suggests. Remodeling contractors will be able to capitalize on a number of growth opportunities generated by underinvestment in distressed properties, lower mobility, changing migration patterns, and the rise of environmental awareness.
“Lower household mobility following the housing-market crash means that in the coming years homeowners will increasingly focus on improvements with longer paybacks, particularly energy-efficient retrofits,” said Kermit Baker, director of the Remodeling Futures Program at the Joint Center. “Also, a slowing of migration to traditionally fast-growing Sunbelt metro areas means that, at least temporarily, more remodeling spending will remain in older, slower-growing areas in the Rustbelt and in California.”
Copies of the report are available at Harvard Remodeling Industry Report.
Market Challenges and Positives
The report says remodeling activity peaked nationally in 2007, “well after the housing bubble burst but before the collapse of the U.S. financial system sent the broader economy into recession.” The Joint Center for Housing Studies estimates that the overall remodeling market declined 12% between the 2007 peak and 2009. Homeowner spending alone dropped an estimated 20% plus.
Still, at nearly $290 million in 2009, the remodeling market “held up much better than new residential construction during the downturn,” the report’s Introduction and Summary states, with the maintenance component of remodeling expenditures actually increasing slightly from 2007 to 2009—“not surprising since this spending category tends to remain fairly stable across cycles.”
Other key conclusions and forecasts from the report’s Introduction and Summary include the following.
• The remodeling market nearly doubled in size from 1995 to 2009, essentially matching the expansion of the broader economy.
• When the economy and housing markets are strong, spending on remodeling increases more slowly. During slumps in housing construction, remodeling’s share of residential investments increases. When the housing market crashed between 2005 and 2009, the remodeling share rose to more than two-thirds of total residential investment.
• Self-employed contractors continue to make up the majority of the industry, although evidence of concentration among larger contractors is apparent.
• Falling home prices, mortgage delinquencies and homeowners whose mortgage loan balances exceed home market value are dampening remodeling activity by reducing home sales and the spending such turnover generates.
• On the upside, market fundamentals—the number of homes in the housing stock, the age of those homes, and income gains of homeowners—bode well for spending on remodeling in the years ahead.
• As the economy and the housing market return to more normal conditions over the next five years, homeowner spending on improvements will follow suit.
The Joint Center for Housing Studies is Harvard University’s center for information and research on housing in the United States and elsewhere, and the Remodeling Futures Program is a comprehensive study of the factors influencing the growth and changing characteristics of housing renovation and repair activity.
Principal support for the study was provided by the Policy Advisory Board and the Remodeling Futures Steering Committee of the Joint Center for Housing Studies. The Joint Center also expressed its appreciation to Masco Corp, for providing research and communications support. Masco is the parent company of a number of producers of building products and materials, including paint and coatings companies Behr Process Corp. and Masterchem Industries LLC.