Remodeling expenditures are projected to expand by nearly 62 percent, between 2006 and 2016, to $369.3 billion. But a slowdown in remodeling spending, which began manifesting itself in the second quarter of 2006, is expected to continue for several years, especially at the higher-end of the market, before bouncing back by the middle of the next decade. Demand for outdoor living improvements could help propel that growth.
Those are some of the key findings that Kermit Baker, director of the Remodeling Futures Program for Harvard University's Joint Center for Housing Studies; and Gopal Ahluwalia, staff vice president with NAHB's research economics group, presented during a seminar on the outlook for remodeling they presented during IBS.
Baker noted that as existing home sales and home values have sagged, there is less incentive for owners to make improvements to their homes. He pointed to statistics showing how the percentage of costs recouped from a remodeling project has been trending downward for a number of years, to its current level of around 70 percent. And as home values erode, owners are less able or willing to cash in on their homes' equity to pay for remodeling projects. As remodeling expenditures level off, small contractors will become more vulnerable, and Baker foresees business failures as a result.
Ahluwalia said NAHB's Remodeling Market Indexes on current conditions and future expectations, which are based on surveys of 1,500 remodelers, were at their lowest levels in the fourth quarter of 2007 since the association started conducting these surveys in 2001. (He could not immediately reconcile what the indexes were saying with a separate NAHB survey of 525 remodelers, more than half of whom expect their company's sales to be up in 2008.) At any rate, NAHB's remodeling data show that maintenance expenditures could increase at a slightly faster pace than those for improvements over the next decade.
Historically, the Northeast and West have led the nation in remodeling spending, both in total and on a per-household basis. Ahluwalia showed that 65 percent of all expenditures in 2006 were made by households with incomes of $75,000 or more, even though these account for only 31 percent of all households. His data also found a much higher demand among upscale homes for outdoor living products. For example, where only 18 percent of owners of an "average" home anticipated the need for barbecue grills or outdoor kitchens, 71 percent of upscale home owners rated the need for these products highly. This same trend was evident when owners were asked about outdoor cooking islands and refrigerators, outdoor lighting, and audio/video equipment.
More than half of the 525 remodelers that NAHB polled said that decks were the most common outdoor remodeling job they did in 2007, followed by porches (35 percent), and patios (27 percent). Over the past five years, 44 percent of those polled said that their outdoor remodeling work had increased "significantly" or "somewhat"; in the past year alone, it had increased by 31 percent.