Improving and maintaining homes are integral parts of the housing industry.
Whether it's replacing an HVAC system, repainting or replacing shutters, rejuvenating a bathroom, or restoring an old house, the remodeling industry covers the work. According to the U.S. Census Bureau, there were 77,444 remodeling companies in the U.S. in 2012 (the latest available economic census on construction). The vast majority are small, one-person operations.
Estimates of expenditures on remodeling vary. Harvard University's Joint Center for Housing Studies estimates homeowner remodeling at $192 billion in 2013, and nearly $300 billion for remodeling and maintenance of owned and rented homes. As a comparison, construction of new single-family and multifamily homes in 2013 was just over $200 billion. The Census Bureau estimates of homeowners' remodeling activities were $133 billion in 2013, or about 70% of the Joint Center's estimate. Both estimates are large, especially compared with the relatively weak performance of new housing.
Remodeling took the place of new construction in many markets and to many households during the housing collapse. Many homeowners weren't ready to tackle the housing market but did need better housing such as a newer kitchen, an expanded place to work or to accommodate additional relatives or adult children returning home. In addition, tax credits for energy conservation projects boosted sales of windows, doors, and insulation. The combination of incentives and a substitution for moving moderated the home remodeling industry shrinkage to about a 20% drop instead of the new construction collapse of 80%.
Remodeling is benefiting from a revived housing market as home values increase and more existing homes are offered for sale and purchased. Existing home sellers fix up their homes and existing home buyers change their purchases to accommodate their preferences. Turnover in the existing market improves remodeling's outlook. Increasing values provide homeowners with the comfort to increase the value of their home, and added equity provides the means to finance remodeling. As the housing market continues to recover, these forces will advance the remodeling market.
According to a recent NAHB survey of remodelers, bathrooms continue to be the No. 1 project by 78% of remodelers, with kitchen remodeling a close second with 77%. An NAHB model of what drives home values estimates that an extra bath can add $37,000 to the value of a home.
Single-family existing home sales are up 8% from last year and as those sales continue to rise, remodeling also will grow. Over half of all single-family owned homes—36 million homes—are 35 years old or older. The top reason cited by homeowners for undertaking remodeling is a desire to have better or newer amenities, and the second-most cited reason is to repair or replace old components.
Remodelers' sentiment for the future also has improved significantly over the cycle. NAHB conducts a quarterly survey of remodelers with the same questions about current and expected business. The survey results are expressed in an index valued from 0 to 100 with 50 as the tipping point where more remodelers view the market positively than those with a negative view. The index has been over that tipping point for 11 of the past 12 quarters and currently stands at 59. That is a significant improvement from a low point of 22 in the fourth quarter of 2008. Minor owner-occupant additions and alterations consistently have scored better than major remodeling jobs.
The most frequent remodel financing method is cash, which can explain the preference for more modest projects. Rising home values and better financing terms are likely to increase the ability to finance work out of home equity. Existing home values have increased about 6% per year, which adds about $15,000 to the value of a typical existing single-family home each year.
NAHB expects remodeling activity to continue rising about 3% to 4% per year as more existing homes are sold, as current owners gain additional equity and as general economic conditions improve consumer confidence.