Remodeling Market Poised for Growth
In the wake of the worst downturn in recent history, the U.S. home improvement industry is poised for growth, according to a new report from the Joint Center for Housing Studies at Harvard University. Over the coming years, remodeling expenditures are expected to increase at an inflation-adjusted 3.5 percent average annual rate, below the pace during the housing boom, but sharply recovering from the recent downturn.
“As both the economy and the housing market stabilize, so too will homeowner improvement spending,” says Abbe Will, a researcher with the center's 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. 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,” says Eric Belsky, the Joint Center's managing director.
The report, A New Decade of Growth for Remodeling, also predicts the focus of remodeling spending will shift from upper-end discretionary projects to replacements and systems upgrades. Remodeling contractors have a number of growth opportunities generated by underinvestment in distressed properties, lower mobility, changing migration patterns, and the rise of environmental awareness, it is suggested.
“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,” says Kermit Baker, director of the Remodeling Futures Program. “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.”
Among the topics highlighted in the report:
- Federal tax credits for energy retrofits supported spending on professionally installed energy-related replacement and upgrade projects, which fell less than half as much as overall home improvement expenditures in 2007-2009.
- According to a Joint Center national survey, the number of contractors reporting that they worked on projects eligible for federal energy tax credits jumped from less than 40 percent in mid-2009 to almost 69 percent in mid-2010.
- More than 650,000 contractors primarily served the residential remodeling market in 2007, up from 530,000 five years earlier. Most of this growth reflects significant increases in the numbers of both self-employed and special trade remodelers.
- Larger firms are playing an increasingly dominant role in the remodeling market. Remodelers with revenues of at least $1 million in 2007 accounted for 55 percent of total industry employment, 65 percent of material purchases, and 66 percent of remodeling and repair receipts.
- Following the crash of the housing market, the most dramatic declines in remodeling activity occurred in the metropolitan areas where house prices and remodeling spending had surged most in the first half of the decade. Going forward, local demographic characteristics and stable house prices will determine which metropolitan areas recover most quickly. Markets 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.
The report also includes numerous tables with data on remodeling market spending, including estimates for dollars spent and number of projects. Table 1 below highlights window and door spending trends over the past 10 years.
Table 1-Harvard Joint Center for Housing Studies estimates based on American Housing