The Remodeling Market Kermit Baker Remodeling Futures Program International Builders Show January 21, 2010 www.jchs.harvard.edu
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? www.jchs.harvard.edu
Remodeling Spending Market Has Fallen Almost 25% From 2007 High Billions of dollars $350 326 $300 280 52 $250 $200 $150 $100 $50 149 41 108 161 40 121 180 44 136 229 210 57 48 162 172 49 231 274 246 39 207 $0 1995 1997 1999 2001 2003 2005 2007 2009(e) Owner-occ. homes Rental units Sources: JCHS tabulations of the 1995-2007 American Housing Surveys (AHS) and the US Department of Commerce Survey of Expenditures for Residential Improvement and Repairs (C-50 reports). 2009 estimate base on JCHS LIRA.
Homeowner Improvement Spending Continues to Trend Down, But Downturn is Moderating Four-Quarter Moving Rate of Change for Owner Spending on Home Improvement Projects 20% 17.6% 14.8% 10% 16.0% 10.6% 6.8% 3.1% 0% -10% -20% 2006-1 2 3 4 2007-1 -0.1% -4.0% -8.8% 2 3 4 2008-1 -14.0% -16.1% -13.6% -11.1% 2 3 4 2009-1 -6.1% -5.4% 2 3 Source: U.S. Census Bureau
Remodeling Firms Payrolls Have Been Declining, and May Be Near Bottom for This Cycle Employees at residential remodeling firms; % change from year ago 15% 10% 5.8% 8.9% 7.6% 5% 7.4% 1.0% 1.3% 0% -5% -2.9% -4.7% -3.8% -5.7% -6.1% -6.7% -10% -7.8% -9.5% -8.5% -9.0% -15% 2006-1 2 3 4 2007-1 2 3 4 2008-1 2 3 4 2009-1 2 3 4(e) Source: US Bureau of Labor Statistics
Remodeling Market Trends: Positives National economy and industry fundamentals improving; Opportune time for remodeling - lower project costs and quicker scheduling; Incentives for energy conservation (e.g. energy tax credits; cash for caulkers) generating more green remodeling; Deferred investment in homes, particularly for distressed properties;
Remodeling Market Trends: Challenges Job market remains weak, high unemployment; Lower levels of home equity, continued credit restrictions; Cost recovery falling for most types of home improvement projects; New EPA lead paint rules;
With Booming Stock and Housing Market, Wealth Doubled Between 1995 and 2007 Average household net wealth, 000s of 2007$ 600 Non-housing 554 500 Housing 464 491 400 300 287 360 368 369 419 200 222 286 100 0 122 135 74 96 65 1995 1998 2001 2004 2007 Sources: 1995-2007 Survey of Consumer Finances, Federal Reserve Board.
Older Homeowners Benefited From the Long Run-Up in House Prices Average household net housing wealth, 2007, $000s 250 216 200 184 150 160 135 100 93 50 33 0 Under 35 35-44 45-54 55-64 65+ All Owners Age of Head Source: 2007 Survey of Consumer Finances, Federal Reserve Board.
Likewise Upper-Income Households Benefited the Most from the Run-Up in House Prices Average household net housing wealth, 2007, $000s 350 300 309 250 200 150 135 100 50 49 73 106 0 Lowest Quartile Second Quartile Third Quartile Highest Quartile All owners Income Source: 2007 Survey of Consumer Finances, Federal Reserve Board.
Higher Valued Homes Didn t Rise as Fast During the Boom, and Haven t Fallen as Far Index, January, 2000=100 250 Low Tier 200 Middle Tier High Tier 150 100 2003Q1 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. 2006. Source: S&P/Case-Shiller Home Price Indices.
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)
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)
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;
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. 2008-Dec. 2009.
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. 2008-Dec. 2009.
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 35 65+ 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. 2008-Dec. 2009.
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. 2008-Dec. 2009.
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. 2008-Dec. 2009.
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. 2008-Dec. 2009. Mar Apr May Jun Jul Aug Sep Oct Nov Dec (e)
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 $139.1 40% 30% $135 $133.0 20% $130 $125 $120 $115 $110 $105 10.6% 6.8% 3.1% -0.1% -4.0% -8.8% $125.7 $121.0-14.0% -16.1% $120.1-13.6% $118.2 $118.1-11.1% -6.1% -5.4% $114.5-8.7% $109.7-12.0% $103.9-8.8% $107.7-3.1% $110.9 10% 0% -10% -20% $100 4 2007-1 2 3 4 2008-1 2 3 4 2009-1 2 3 4 2010-1 2 3-30% US Census Bureau LIRA Source: Joint Center for Housing Studies.
Evolving Industry Structure How Contractors have Fared During Downturn Number of firms Optimal size of a contracting firm Performance by specialization.
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% 2000 2001 2002 2003 2004 2005 2006 2007 2008-5% -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.
Contractor Specialties Exhibit a Lot of Volatility Median annual rate of change in revenue, top 500 contractors 15% 10% 2007 2008 12.0% 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.
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 $) $60 54.4 124.5 $50 2008 avg. project size, (000 s) $140 $120 $40 $100 $30 $80 $60 $20 17.1 15.6 $40 $10 $0 Full-Service Replacement Insurance Restore. Revenue 17.2 5.4 Full-Service Replacement Insurance Restore. Ave. Job Size $20 $0 Source: Remodeling Magazine, 2009 Remodeling 550.
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.