Features and tRends

(Sept. 15, 2006)

HOME REMODELING OUTLOOK REMAINS STRONG

The home market is quickly becoming the yardstick by which we measure the strength of the United States economy. As the forecast for housing activity and consumer spending is expected to weaken, the outlook for the home remodeling market remains strong.

In the first quarter of 2006, United States remodeling activity experienced moderate growth according to the National Association of Home Builders’ (NAHB) Remodeling Market Index (RMI). Unfortunately, this slight progression was short-lived, as news of a decline in remodeling activity for the second quarter of 2006 was reported on Aug. 22 by the NAHB. However, even with this recent setback for the home remodeling market, experts remain optimistic that the future outlook remains strong.

The remodeling industry reported a record year in 2005 with homeowner equity topping $11 trillion. According to the U.S. Census Bureau, Americans spent a record $215 billion on residential remodeling in 2005, showing that remodeling projects will continue to stimulate the market and help to offset the decline in housing sales. However, home remodeling is not as volatile a market as the housing market because requisite maintenance and repair projects account for over half of all remodeling expenditures.

Another contributing factor to the stability of the remodeling market lies in the emergence of high-end luxury home projects. In 2003, a study conducted by Harvard University’s Joint Center for Housing Studies found that the driving force behind the strong gains the remodeling market has seen in recent years is due to the increasing income of the top 20 percent of U.S. households. Their effect on the remodeling market can be seen in the fact that although only one in four American households fall into this category they were responsible for over half of all home improvement expenditures in 2003.

Due to the recent rise in interest rates and the drop in home sales, the short-term forecasts for the remodeling industry will continue to slow down. However, the long-term outlook remains positive, in part because of the accelerated growth of the homeowner population, ongoing home maintenance and repair projects, the continued strength of Baby Boomer spending and the increase in home improvement spending among younger generations. New trends in remodeling including the emergence of age-in-place design will also help to fuel the remodeling market. Over the next few years we should continue to see new records being set in home remodeling activity.


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