Updating existing homes continues to be a solid component within the weaker overall housing recovery. Total spending on remodeling owner-occupied homes exceeded the value of new single-family construction in 2011 for the third straight year. In a more typical year, remodeling expenditures on owner-occupied homes are less than 40 percent of new single-family construction expenditures. Two opposing trends are responsible.
New single-family construction remains weak although it has begun to show some forward momentum since early fall 2011. As home prices bottom and local economies start growing, home buyers are coming back into the market. New single-family construction values exceeded owner remodeling by $6 billion in March for only the second month in the last year and a half.
Single-family construction was down 75 percent from its peak in 2005 to $107 billion in 2011 while owner remodeling spending was down 20 percent from its peak in 2006 to $116 billion in 2011. Remodeling has risen 3.5 percent since its trough in 2009 while single-family construction is up barely over 1 percent since 2009. A more encompassing measure of remodeling within the residential fixed investment accounts, which includes remodeling rental properties, mobile home production, and real estate broker commissions, increased 14 percent since fall 2010. The stronger recovery in remodeling is due to several factors.
Existing-home owners remain interested in updating the most used rooms. The two top projects are bathrooms, 78 percent of remodelers listed it as the most common job in 2011, and kitchens, 69 percent listed it as most common. Both projects have been the top jobs throughout the 2000s but bathroom remodeling took first place from kitchens in 2010 and kept it in the 2012 survey. Other popular jobs with over 35 percent of remodelers were window and door replacements, repairing property damage, and whole-house remodeling. However, whole-house remodeling is down significantly from highs of the housing boom.
Less common remodeling jobs include finishing attics, garages, and basements and adding second stories. Adding and repairing roofs, siding, and decks were cited as common projects by about one-quarter of the remodelers.
The homeowners who do remodel are most interested in repair and replacement of old components and a desire for better or newer amenities. Both earned four points out of a possible five in the NAHB 2012 survey. Additionally, remodelers saw these two reasons trending up over the past two years. The next most frequently cited reason was the need for more space followed by the desire to avoid moving, which also appears to be increasing. Infrequently cited reasons were preparing for a sale, changes in the number of people living in the house, and a desire to increase the value. Remodelers also saw a declining trend in these reasons.
The low motivation to increase the home’s value as an investment and to prepare for a sale along with the high motivation to update daily used components reinforces the conclusion that homeowners are more interested in their own use than enhancing the property for future owners. As home prices remain soft, immediate and personal use of the home is a much higher motivation than anticipating appreciation or future values.
The slowdown in household formations because adult children are not moving out or are moving back in does not appear to have affected remodeling activity. A relatively small share of remodelers cited a change in the number of people living in the house as a reason for remodeling and adding a room was a common project for only one-third of remodelers. This could simply mean that the children are moving back into their former rooms but the parents are not making additional space for fear the kids may stay.
Recent remodeling trends are likely to continue as the economy improves and homeowners become more confident in their future income stream.