The Remodeling Market

Transcription

1 The Remodeling Market Kermit Baker Remodeling Futures Program International Builders Show January 21,

2 Remodeling Market Issues 1. Where do we stand in the remodeling cycle at present? 2. What households demographic groups and areas of the country look to have the most upside for growth in remodeling spending? 3. Which remodeling segments are doing the best at present, and why? 4. Remodeling market outlook what s the evidence of an emerging recovery?

3 Remodeling Spending Market Has Fallen Almost 25% From 2007 High Billions of dollars $ $ $250 $200 $150 $100 $ $ (e) Owner-occ. homes Rental units Sources: JCHS tabulations of the American Housing Surveys (AHS) and the US Department of Commerce Survey of Expenditures for Residential Improvement and Repairs (C-50 reports) estimate base on JCHS LIRA.

4 Homeowner Improvement Spending Continues to Trend Down, But Downturn is Moderating Four-Quarter Moving Rate of Change for Owner Spending on Home Improvement Projects 20% 17.6% 14.8% 10% 16.0% 10.6% 6.8% 3.1% 0% -10% -20% % -4.0% -8.8% % -16.1% -13.6% -11.1% % -5.4% 2 3 Source: U.S. Census Bureau

5 Remodeling Firms Payrolls Have Been Declining, and May Be Near Bottom for This Cycle Employees at residential remodeling firms; % change from year ago 15% 10% 5.8% 8.9% 7.6% 5% 7.4% 1.0% 1.3% 0% -5% -2.9% -4.7% -3.8% -5.7% -6.1% -6.7% -10% -7.8% -9.5% -8.5% -9.0% -15% (e) Source: US Bureau of Labor Statistics

6 Remodeling Market Trends: Positives National economy and industry fundamentals improving; Opportune time for remodeling - lower project costs and quicker scheduling; Incentives for energy conservation (e.g. energy tax credits; cash for caulkers) generating more green remodeling; Deferred investment in homes, particularly for distressed properties;

7 Remodeling Market Trends: Challenges Job market remains weak, high unemployment; Lower levels of home equity, continued credit restrictions; Cost recovery falling for most types of home improvement projects; New EPA lead paint rules;

8 With Booming Stock and Housing Market, Wealth Doubled Between 1995 and 2007 Average household net wealth, 000s of 2007$ 600 Non-housing Housing Sources: Survey of Consumer Finances, Federal Reserve Board.

9 Older Homeowners Benefited From the Long Run-Up in House Prices Average household net housing wealth, 2007, $000s Under All Owners Age of Head Source: 2007 Survey of Consumer Finances, Federal Reserve Board.

10 Likewise Upper-Income Households Benefited the Most from the Run-Up in House Prices Average household net housing wealth, 2007, $000s Lowest Quartile Second Quartile Third Quartile Highest Quartile All owners Income Source: 2007 Survey of Consumer Finances, Federal Reserve Board.

11 Higher Valued Homes Didn t Rise as Fast During the Boom, and Haven t Fallen as Far Index, January, 2000= Low Tier 200 Middle Tier High Tier Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 Notes: House values for tiers: Low - under $289,467; Middle - $289,467-$449,392; High - over $428,000. High value for tiers: Low - Aug. 2006; Middle Jul. 2006; High Jul. 2006; Overall Jul Source: S&P/Case-Shiller Home Price Indices.

12 Previously Overheated Markets Have Typically Seen the Steepest Price Declines Of 50 largest metro areas in U.S., top and bottom 10 for house price changes over past year Note: Change in sales measured over past 12 months (2008Q3~2009Q3). Sample includes 50 largest metropolitan areas defined by total housing units. Sources: NAR Real Estate Outlook; Moody's Economy.com Estimates of Total existing single-family home sales (SAAR)

13 Which In Turn Often Have Produced the Greatest Increase in Home Sales Recently Of 50 largest metro areas in U.S., top and bottom 10 for home sale changes over past year Note: Change in sales measured over past 12 months (2008Q3~2009Q3). Sample includes 50 largest metropolitan areas defined by total housing units. Sources: NAR Real Estate Outlook; Moody's Economy.com Estimates of Total existing single-family home sales (SAAR)

14 Tracking Recent Home Improvement Trends: NPD/HIRI Monthly Consumer Sentiment Index National monthly survey of about 13,000 households (9,000 homeowners) on home improvement plans, with data released early the following month; Number of planned projects, estimated cost, DIY/pro installation, and expected financing information collected; Over 150 home improvement, maintenance and repair, and lawn and garden categories covered each month in survey;

15 Planning Remodeling Spending by Owners Still Below Year-Ago Levels, but Pace is Moderating Three month moving averages compared to year-ago level for planned spending 0% -5% -10% -15% -13.4% -14.4% -14.5% -13.9% -11.4% -11.7% -14.0% -13.9% -12.7% -18.8% -20% Mar Apr May Jun Jul Aug Sep Oct Nov Dec (e) Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; December figure based on November and December data only. Source: JCHS tabulations of the Home Improvement Research Institute s monthly Consumer Sentiment Tracking Study, Feb Dec

16 Planned Spending Recovering Faster for Upper-Income Owners Three month moving averages compared to year-ago level for spending for planned home improvement projects by income 30% 20% Under $45K $100K+ All 10% 0% -10% -20% -30% Mar Apr May Jun Jul Aug Sep Oct Nov Dec (e) Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; December figure based on November and December data only. Source: JCHS tabulations of the Home Improvement Research Institute s monthly Consumer Sentiment Tracking Study, Feb Dec

17 And Also for Less-Leveraged Seniors Three month moving averages compared to year-ago level for spending for planned home improvement projects by age of respondent 100% 80% Under All 60% 40% 20% 0% -20% -40% Mar Apr May Jun Jul Aug Sep Oct Nov Dec (e) Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; December figure based on November and December data only. Source: JCHS tabulations of the Home Improvement Research Institute s monthly Consumer Sentiment Tracking Study, Feb Dec

18 Spending on Professionally-Installed Projects Recently Doing Better Than Do-It-Yourself Three month moving averages compared to year-ago level for spending for planned home improvement projects 0% -5% Pro DIY Total -10% -15% -20% -25% Mar Apr May Jun Jul Aug Sep Oct Nov Dec (e) Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; December figure based on November and December data only. Source: JCHS tabulations of the Home Improvement Research Institute s monthly Consumer Sentiment Tracking Study, Feb Dec

19 With Ongoing Credit Restrictions, Cash Financing of Projects Becoming More Popular Three month moving averages compared to year-ago level for spending for planned home improvement projects 5% 0% -5% Cash & Own Funds Loans Gifts & Other All Projects -10% -15% -20% -25% Mar Apr May Jun Jul Aug Sep Oct Nov Dec (e) Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; December figure based on November and December data only. Source: JCHS tabulations of the Home Improvement Research Institute s monthly Consumer Sentiment Tracking Study, Feb Dec

20 Though Volatile, Planned Exterior Replacement Projects Losing Momentum Three month moving averages compared to year-ago level for spending for planned home improvement projects 0% -5% Additions and remodels Exterior replacements All Projects -10% -15% -20% -25% Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; December figure based on November and December data only. Source: JCHS tabulations of the Home Improvement Research Institute s monthly Consumer Sentiment Tracking Study, Feb Dec Mar Apr May Jun Jul Aug Sep Oct Nov Dec (e)

21 Leading Indicator Points to Cyclical Low in Current Quarter with Gains Through Year Homeowner Improvements Four-Quarter Moving Totals, Billions of $ Four-Quarter Moving Rate of Change $150 $145 $140 $144.9 $145.8 $146.2 $144.2 $ % 30% $135 $ % $130 $125 $120 $115 $110 $ % 6.8% 3.1% -0.1% -4.0% -8.8% $125.7 $ % -16.1% $ % $118.2 $ % -6.1% -5.4% $ % $ % $ % $ % $ % 0% -10% -20% $ % US Census Bureau LIRA Source: Joint Center for Housing Studies.

22 Evolving Industry Structure How Contractors have Fared During Downturn Number of firms Optimal size of a contracting firm Performance by specialization.

23 Contractor Revenue Growth Has Been Very Volatile in Recent Years Median annual change in remodeling revenue, top 500 remodeling contracting firms 15% 10% 7.4% 8.4% 8.0% 10.2% 8.7% 5% 4.7% 5.1% 3.1% 0% % -3.8% Note: Analysis includes remodelers reporting revenue in any two consecutive years and ranking in the top 400 in at least one of those years. Source: JCHS tabulations of Qualified Remodeler magazine s Top 500 contractors.

24 Contractor Specialties Exhibit a Lot of Volatility Median annual rate of change in revenue, top 500 contractors 15% 10% % 5% 3.1% 2.0% 3.2% 5.0% 2.7% 4.6% 0% -5% -3.8% -4.8% -3.1% -7.4% -10% All -8.7% Design/ Build Full-Service K & B Ext. Replace. Ins. Restor. Note: Analysis uses firms reporting revenue in 2007 and 2008 that were ranked in the top 400 in at least one year. Source: JCHS tabulations of Qualified Remodeler magazine s Top 500 contractors.

25 Among Largest Firms, Replacement Contractors Have Greater Scale; Smaller Projects Median revenue and project size of top 10 contractors in each category 2008 firm revenue (millions $) $ $ avg. project size, (000 s) $140 $120 $40 $100 $30 $80 $60 $ $40 $10 $0 Full-Service Replacement Insurance Restore. Revenue Full-Service Replacement Insurance Restore. Ave. Job Size $20 $0 Source: Remodeling Magazine, 2009 Remodeling 550.

26 Summing Up: The Remodeling Outlook Remodeling industry still recovering from housing downturn; economic recession; and significant loss of home equity wealth. Many previously overbuilt markets have seen significant price declines, which are now seeing a rebound in sales. Remodeling consumers/sectors recovering fastest: Seniors Upper-income Smaller cash projects Home improvement recovery looks to get underway during current quarter.