Trends and Outlook for the Remodeling Industry

Transcription

1 Trends and Outlook for the Remodeling Industry Kermit Baker Remodeling Futures Conference November 7,

2 The Remodeling Market Has Almost Doubled in Size Over the Past Decade Billions of Dollars $ $ $200 $150 $ $ Spending on owner-occupied units Spending on rental units Sources: JCHS tabulations of American Housing Survey (AHS) and the US Department of Commerce Survey of Expenditures for Residential Improvement and Repairs.

3 Over Past Decade, Upper-end Projects Have Been Fastest Growing Remodeling Segment Share of Spending on Home Improvement Projects Property Improvement 19% Upper-end* 21% Property Improvements 16% Upper-end* 32% Exterior 21% Interior Replacements 5% Systems upgrade 18% Other Remodels, Adds. and Alts. 16% Exterior 19% Interior Replacements 9% Systems upgrade 16% Other Remodels, Adds. and Alts. 8% * Upper-end projects defined as kitchen remodels of $10,000 or more, bath additions and remodels of $5,000 or more, and room additions of $25,000 or more in 2005$. Source: JCHS tabulations of 1995 and 2005 AHS.

4 A Perfect Storm for Remodeling Rising house prices High turnover rates for existing homes Low financing costs Income growth concentrated at upper-end of income distribution Nesting post 9/11

5 Recent Trends in Remodeling-Related Indicators Remodeling Drivers: - existing and pending home sales Remodeling Specific: - payrolls at general remodeling contractor firms - remodeling market index (NAHB)

6 Existing and Pending Home Sales also are Slowing Millions of home sales, annualized rate Index: 2001= Existing home sales (left) Pending home sales (right) Source: National Association of Realtors

7 Growth in Remodeling Contractor Payrolls is Easing Remodeling Contractor Payrolls (12 mo. moving avgs s) Annual Growth Rate % % % % 7.3% 260 6% % 4.6% 60% 6.0% 5.9% 4.0% 4% % 2.5% 1.4% % 0% Employees Ann. % chng. Source: U.S. Department of Labor Current Employment Statistics

8 NAHB Remodeling Market Index Recently Has Been Easing Diffusion indexes of current conditions and future expectations, seasonally adjusted Current Conditons Future Expectations Source: NAHB

9 Until Recently, RMI for Major Projects Has Been Weaker Than for Minor Projects Diffusion indexes for major and minor projects, seasonally adjusted Major projects (>$25,000) Minor projects (<$25,000) Source: NAHB

10 After Strong Growth, RAI points to Homeowner Remodeling Easing to Single-Digit g Growth Rate Homeowner Remodeling Activity Billions of $ Annual Rate of Change 4-quarter Moving Totals $180 $170 $160 $150 $140 $130 $120 $110 $100 $90 $80 $178.2 $166.3 $170.1 $158.0 $160.5 $148.7 $150.8 $ $127.2 $ % 20.4% 18.6% 18.5% 18.2% $ % 14.4% 8.3% 1.5% 5.1% 1.6% % 35% 30% 25% 20% 15% 10% 5% 0% Source: U.S. Census Bureau and Joint Center for Housing Studies.

11 Remodeling Sectors Strongest at Present % of respondents reporting improving minus % reporting weakening ; Q3:2006 and Q3:2005 Remodeling: Adds, Alts Remodeling: Kitchen, Bath Townhouse/Condo Custom/Luxury Homes Move-Up Homes Second/Vacation Homes First-Time Buyer / Affordable Homes Source: AIA Home Design Survey

12 Leading Indicator for Remodeling Activity Points to Slower Growth Homeowner Remodeling Activity Billions of $ $190 $170 $158.0 $170.1 $166.3 $178.2 $161.5 Annual Rate of Change 4-quarter moving totals $165.0 $163.8 $ % 30% $150 $143.4 $148.7 $ % $130 $110 $123.5 $ % 5.1% $ % 19.6% 20.4% 18.6% 18.5% 15.9% 14.4% 4% 18.2% 2.2% -0.8% -3.7% -7.3% 10% 0% $ % Source: Joint Center for Housing Studies.

13 Trends in Organization of Remodeling Contractor Businesses

14 Number of Remodeling Contracting Businesses Grew Significantly Between 1997 and 2002 Number of remodeling contractor establishments with payrolls plus selfemployed contractors with revenues of $25,000 or more (000s) Special Trade General Note: 1997 figures include the estimated number of nonemployer partnerships and corporations serving the remodeling industry Source: Unpublished tabulations of the 1997 and 2002 Economic Census.

15 Self-Employed Remodeling Contractors Increased Faster than Firms with Payrolls Between 1997 and 2002 Number of remodeling contractors with payrolls plus self-employed contractors with revenues of $25,000 or more Number of Businesses % Change General Contractors Payroll 62,400 82, % Special Trade Self-employed 71,900* 127, % Total 134, , % Payroll 109, ,200 +7% Self-employed 158,200* 202, % Total 267, , % Total 401, , % * Note: 1997 figures have been adjusted to include the estimated number of nonemployer partnerships and corporations serving the remodeling industry that were included in figures for 2002 Source: Unpublished tabulations of the 1997 and 2002 Economic Census.

16 General and Special Trade Remodeling Contractors Dominated by Smaller Businesses Share of Establishments with Payrolls General Special Trade 11.0% 1.1% 21.2% 11.2% 7.3% 0.7% 26.7% 14.0% 19.8% 19.7% 33.2% Annual Revenue (000s) Less than $100 $100 - $249 $250 - $ % 3% $500 - $999 $1,000 - $4,999 $5,000 or More Source: Unpublished tabulations of the 2002 Census of Construction.

17 General Remodeling Contractors and Special Trades Establishments Average Similar Size $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 $816 $578 $542 $538 $549 $452 $433 $382 $357 $231 General Remodeling Drywall Insulation Roofing Siding Plumbing, Heating, AC, Electrical All Special Trades Flooring, Tile Framing Finish Carpentry Painting Averagee 2002 Revenue (000s), Payroll Establishments Source: Unpublished tabulations of the 2002 Construction Census.

18 Average Receipts per Employee Higher for General Contractors than for Special Trades Average Net Billings Per Employee $80,000 $70,000 $60,000 $50, $71,300 $60,900 $57,100 $55,900 $55,600 $55,200 $54,300 $50,200 $46,100 $45,100 $40,000 $30,000 $20,000 $10,000 $0 General Remodelin g Plumbing, Heating, AC C, Electric Framin g All Specia al Trades Sidin ng Roofin ng Flooring, Til le Finish Carpentr ry Drywall, Insulatio on Paintin g Source: Unpublished tabulations of 2002 Construction Census.

19 Remodeling Contracting Businesses in South Slightly Larger; Slightly Smaller in Midwest Number of remodeling contractors with payrolls, and average revenue General Contractors Special Trade Number of Firms Average Revenue (000s) Number of Firms Average Revenue (000s) Northeast 17, , Midwest 20, , South 23, , West 21, , Total 82, , Source: Unpublished tabulations of 2002 Census of Construction.

20 Larger Firms Generate Most Employment and Revenue for Industry General Remodeling Contractor Share of Payroll Establishments, Employment and Billings, % 37.8% 35% 33.1% 30% 29.9% 25% 20% 15% 10% 21.2% 7.2% 17.7% 9.9% 19.7% 16.2% 12.6% 13.9% 17.7% 17.8% 11.0% 11.3% 19.4% 5% 0% 2.4% 11% 1.1% Less than $100 $100 - $249 $250 - $499 $500 - $999 $1,000 - $4,999 $5,000 or More Annual Revenue (000s) Share of Establishments Share of Employment Share of Billings Source: Unpublished tabulations of 2002 Census of Construction.

21 Remodelers More Fragmented Than Other Residential Industry Players Share of total revenue by top businesses 60% 50% 40% 51.5% 48.4% 4% 45.3% 42.0% 35.4% 30% 25.1% 20% 10% 0% 1.4% 2.1% 3.3% 52% 5.2% 10.0% 15.4% Remodeling General Building Material Wood Product Contractors Supply Dealers Manufacturers Top 4 Top 8 Top 20 Top 50 Source: Unpublished tabulations ti of the 2002 Construction ti Census, and 2002 Censuses of Retailers and Manufacturers.

22 In Spite of Strong Growth, Gains Have Been Volatile for Remodeling Firms Compound annual growth rates, top 500 remodelers, % 60% 14.0% 14.3% 14.8% 12.0% 10.0% 0% 11.7% 11.6% 11.6% 8.0% 6.0% 5.4% 6.6% 5.3% 5.5% 5.3% 4.0% 2.0% 0.0% -2.0% 2.7% 1.3% 1.5% 0.8% All Large Firms Design/Build Full Service Specialty Other -0.7% 25th percent. 50th percent. 75th percent. Source: JCHS tabulations of Qualified Remodeler Magazine Top 500 Remodelers, and US Census Bureau Expenditures for Improvements and Repairs of Residential Properties.

23 Near-Term Outlook for Remodeling 1) Total home improvement activity estimated at $280 billion in ) Industry indicators point to recent slowdown; slower growth expected for ) Number of contractor businesses serving the industry has increased to over 500,000 as average revenue per firm has grown very slowly 4) Million dollar contractors generate 40% of employment; almost 60% of revenue