Thanks to a lackluster economy and a housing market that continues to limp along from quarter to quarter, home improvement spending will remain tepid through the first half of 2012, according to the Leading Indicator of Remodeling Activity (LIRA) released today by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University.
These new numbers echo the last set of LIRA data released in July, which projected remodeling activity could be down as much as 4% through the first quarter of 2012. The latest data indicate that there will even be a slight decline in home improvement projects over the next several quarters, which will likely prompt belt-tightening among most, if not all, remodelers.
“There’s a lot of volatility in the market with a bit of random, non-seasonal bouncing around,” says Kermit Baker, director of the Remodeling Futures Program at the Joint Center, adding that the “bouncing around” is due to replacement projects that are typically weather-related, and those numbers are getting mixed into the data. “It’s weak enough that the noise sort of dominates from what the trend is. Our indicators tell us that the trend is flat when we were hoping there would be a more clear sense of a recovery.”
As for how long this lackluster market will continue, Baker says to count on a fairly bleak outlook at least until the middle of 2012. “After that it’s a little too early to tell,” he says. “We’re not seeing anything that would indicate a dramatic turnaround. Quite frankly, it depends on what the economy does over that period.” Key indicators will not only include consumer confidence but also any periods of sustained job growth or a more stable housing market.
Baker adds that in terms of remodeling projects, homeowners are holding off because the equity that a new addition or an updated bathroom would bring to their homes would be negligible at best, especially considering the current market. “There’s just not a sense that if they invest in any home improvement projects that it would increase the value of their home,” he says, adding that financing is still difficult to obtain. “There are enough economic headwinds present that are keeping back any more significant growth.”
For remodeling to see a significant uptick, it’s really going to take a sharp increase in consumer confidence in the economy and housing market. “If you live in a market where prices are trailing down, it’s a more difficult decision to pull the trigger on that upscale remodeling investment,” Baker says. “You’re going to do the roofing and siding stuff that you need to do but the discretionary stuff is a harder sell in this market. It’s going to take some sense that things are getting better. And there’s enough uncertainty that people don’t feel that way at present.”
One of the big problems on the home building side is the amount of distressed housing inventory that’s available and is much cheaper than new homes. To that end, Baker says there’s tremendous remodeling potential for these homes because the owners are investing in remodeling them for resale to the tune of several thousand dollars. “That’s a pretty serious chuck of change in terms of potential for the market,” he points out. “There are some sectors that are doing well but there’s enough nervousness that’s holding [the market] back.”
One of the reasons for the state of the industry is largely due to the types of projects that were popular in the boom years but are not as prevalent during lean times, mainly upscale additions and high-end kitchen and bath remodels. “[These projects] were driving the market, and that’s the piece that’s still relatively weak,” Baker says. “Most of the other pieces have come back pretty well. This last block hasn’t quite fallen into place yet. As the economy recovers I think it will, but there’s enough nervousness that a lot of people are foregoing that piece at the moment.”
—Mark A. Newman, senior editor, REMODELING.