Remodeling and replacement activity nationwide performed slightly below expectations in the second quarter, reported Metrostudy, a Hanley Wood company, in today's Residential Remodeling Index (RRI) release.
The index gained 4.3%, year-over-year, in the second quarter, and follows a 6.5% year-over-year increase in the first quarter. The second quarter’s index of 95.5 is a 0.4% improvement from the revised score of 95.1 in the first three months of 2014. But despite that gain, the index missed its first quarter forecasts by 0.2%.
The RRI is calibrated against 2007, so today's numbers indicate remodelers are doing 95.5% as much business as they were seven years ago. According to the most recent forecasts, the index should hit 100—a full recovery—by 2015.
"Consumer confidence paused in April and May as inflationary pressures crept in, and Americans tempered remodeling efforts against some cooling in home price appreciation,” said Brad Hunter, Metrostudy's chief economist.
“Still, a better-than-expected report on second quarter GDP, rebounds in the Consumer Confidence Index in June and July, and six consecutive months of job growth in excess of 200,000 allows us to remain bullish on our remodeling forecast," added Hunter.
Metrostudy estimates that faster job growth, more "non-distress" home sales, and higher household formulations will drive remodeling and replacement growth for many quarters to come. To date, this is the 10th consecutive quarterly improvement since the market bottomed out in 2011.
According to the report, 371 out of 381 Metropolitan Statistical Areas should see year-over-year growth in remodeling and replacement projects in 2014, with average growth of 4%.
“The long-term outlook for growth remodeling is positive as well,” Hunter said. “Once mortgage rates start to rise, many people who locked in today’s low mortgage rates will be reluctant to move and lose that low financing rate, choosing instead to improve the home they already own.”
About the Residential Remodeling Index
The RRI is a quarterly measure of the level of remodeling activity in 381 metropolitan statistical areas (MSA) in the U.S., with the national composite reflecting the national level of activity. “Activity” includes home improvement and replacement projects, but does not include maintenance or projects of less than $1,000. The seasonally adjusted index shows the relative level of activity in the geography specified (MSA or national composite) compared to 2007 (the baseline year). A number above 100 indicates a level of remodeling activity higher than the level of activity at the beginning of 2007, which was the peak of remodeling activity in the prior decade.
The index is produced through a statistical model that leverages detailed data on remodeling activity, including household level remodeling permits, and consumer-reported remodeling and replacement projects. Quarterly historical results for the national composite and for each of the 381 Metropolitan Statistical Areas in the U.S. are available back to 2004. In addition, Metrostudy also produces annual estimates of project counts and expenditures as well as forecasts of the quarterly RRI and annual projects and expenditures.