Much to the chagrin of a hopeful industry, remodeling and replacement activity declined in the first quarter of 2011 according to Hanley Wood’s Residential Remodeling Index.

Nationally, the level of remodeling and replacement project activity declined to 77.41 from a revised fourth quarter 2010 level of 78.46 resulting in a 1% drop. The previous two quarterly readings essentially reversed the trend that showed improvement nationally in the first half of 2010.

According to Sal Alfano, editorial director of Hanley Wood’s Remodeling Group, this fluctuation is pretty small but it certainly confirms that this will indeed be a long, slow recovery. “That said, consumer confidence is on the rise, and we’ve heard from remodelers in some markets that local activity is improving,” Alfano said.

Remodeling activity bottomed out in the final quarter of 2009 and was on the upswing during the first half of 2010, which was the first resurgence the industry had seen since 2007. The RRI measured a total decline of 22% for the industry’s peak to trough. But after quarter-over-quarter gains of 1% in the first half of 2010, the third quarter ran out of steam, and the fourth quarter registered a decline. Now 2011’s first quarter is showing nationally that activity slowed further, registering at 2009’s low point.

Can’t Catch a Break

Hanley Wood is now forecasting remodeling activity to decline further over the next two quarters before steady improvements begin again in the latter part of 2011 and into 2012. Based on an aggregation of national activity, the RRI is demonstrating a slight decline in the remodeling and replacement industries, according to Jonathan Smoke, Hanley Wood’s executive director of research. “We had hoped that our previously flat forecast expectations would have been revised upward as 2011 seemed to start with much more positive economic expectations than what we had late in 2010,” Smoke said, in a press release. “But, the short-term expectations for the U.S. economy have only grown more pessimistic lately.”

Smoke added that the price of oil being more than $100 per barrel, the disaster in Japan, and political battles over the deficit have put economic forecasts, as well as the moods of consumers in general, in a slightly downward spiral. “It seems that the economy, and more importantly, the consumer, can’t seem to catch a break,” Smoke said. “Now that most economists are revising down the expectations for the year, so too is our forecast for remodeling activity.”

Silver Lining

But remodelers and contractors shouldn’t hang up their toolbelts just yet. Smoke said that there is a silver lining to this negative forecast because there is still a significant difference in activity and expectations for local markets whose numbers are tossed in to create the aggregated national number. “The healthiest markets are performing well better than the national average, and some markets are seeing increases in activity already,” Smoke said. “For example, Austin hasn’t seen any real deterioration and is expected to improve slightly over the year. Of the largest markets in the country, the shining star is possibly Minneapolis where we measure they had a solid increase in activity of 1% in the first quarter and where we expect total activity to increase 7% over the next four quarters.”

Alfano adds that the normal economic “bad news” of the slow housing market can actually be good news for the remodeling industry. “Homeowners have decided to remodel the house they’re in rather than try to sell and buy up,” he explains. “And we’ve also seen some indication that people who canceled or postponed projects in the last few years are showing interest in reviving them. All in all, though, it’s still a tough business climate to evaluate, and remodelers need to continue to be ready for anything.”

Click here to download the RRI Q1 Press Release.  

—Mark A. Newman, senior editor, REMODELING.

About the Residential Remodeling Index: The RRI is a quarterly measure of the level of remodeling activity in 366 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 $500. 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 366 Metropolitan Statistical Areas in the U.S. are available back to 2004.