Though falling home prices have discouraged discretionary home improvement spending and diminished the amount of equity that owners have in their homes, the Joint Center for Housing Studies of Harvard University (JCHS) reports a bright outlook for the remodeling industry in its latest report, "The Remodeling Market in Transition, 2009."
The report, released by the Joint Center’s Remodeling Futures Program, says that in this uncertain economic environment, homeowners are likely to focus their remodeling spending on projects that improve energy efficiency, generate cost savings, and maintain structural integrity. It also anticipates that a correction in the remodeling market will be less severe than in that of the home building industry. (See a slide show of some of the data from the report at the bottom of this page.)
Foreclosure and Renting Become Opportunities
As a reminder that situations often must get worse before they get better, Nicolas P. Retsinas, director of the JCHS, includes in the report a realistic look at the current economic situation. “Earlier this decade, the ability to borrow against equity created by rising home prices fueled remodeling activity, as well as broader consumer spending,” Retsinas says. “Now that prices have softened, owners cannot finance home improvement projects as easily. Even those with equity find credit harder to obtain due to tighter standards.”
Foreclosure risks also have driven down remodeling activity up to now. Owners at risk of defaulting on their mortgages have less incentive to invest in their homes, and those displaced by foreclosure will reduce the national homeownership rate and, in turn, lower remodeling demand.
When housing markets recover, however, foreclosed properties will provide opportunities for home improvements, as banks and new owners renovate and repair these properties and state and local governments make use of the Housing and Economic Recovery Act of 2008, which allocated $4 billion for the redevelopment of abandoned and foreclosed properties.
Similarly, at a presentation during the International Builder’s Show, JCHS senior scholar William Apgar also noted opportunities for the remodeling market in rental properties. “With homeownership declining, rental rates are rising,” he explained. “This has been an overlooked market in remodeling for some time. There are many undermaintained buildings in the marketplace, and with the number of renters up by 3 million, there’s an opening for remodelers to upgrade these buildings, especially in areas of energy efficiency.”
Energy and Upgrades
Indeed, the consumer shift toward energy-efficient products and systems will remain strong and will pave the way for green remodeling, according to the report. “If we are going to meet the nation’s energy goals, we have to continuously search for ways to improve the residential built environment,” says Mohsen Mostafavi, dean of the Harvard Graduate School of Design, where attention to green design is a growing focus in the classroom and studios. “The report demonstrates that maximizing energy efficiency in existing housing may be one of our greatest challenges but also one of our greatest opportunities, given that homes account for almost a quarter of energy consumption in our economy. Consumer demand for sustainable design is on the rise. Architects and planners can lead the way in devising appropriate solutions.”
Existing rental housing and the growing number of immigrant homeowners will also help reverse this downturn in the remodeling industry. “Years of underinvestment have left the nation’s rental stock, at an average age of 36 years, in desperate need of improvement and repair,” says Kermit Baker, director of the Remodeling Futures Program. “And foreign-born homeowners, who currently account for more than 10% of home improvement spending, are heavily concentrated in their 30s and 40s, ages when families are growing and changing the use of their home.”
Taken together, these trends, plus a solid foundation of 130 million homes in continuous need of maintenance, upgrade, and repair, show a bright future for the remodeling industry.