While new-home construction is still in the doldrums, there is evidence that remodeling has hit bottom and is poised for an upswing in the coming year. But remodeling activity is mainly a local phenomenon, and although the overall remodeling market responds to global and national economic trends, some markets are likely to rebound faster than others. The question is, which ones? Our Top 100 Markets list provides the first real answer.
The Top 100 Markets list is based on the Residential Remodeling Index (RRI), a unique new metric designed to provide insights into and forecasts of remodeling activity by market. (The RRI was created by Hanley Wood Market Intelligence, a division of the company that publishes this magazine.)
Issued quarterly and seasonally adjusted, the RRI “Composite Index” measures the overall level of remodeling activity nationally and in 366 metropolitan statistical areas (MSAs). The index essentially benchmarks the current level of remodeling activity, both nationally and in a given market, against activity in 2007, the baseline year. A number above 100 indicates a level of remodeling activity higher than the level of activity in first-quarter 2007, which was the peak of remodeling activity nationally in the prior decade.
Remodeling activity has always been difficult to pin down, so the statistical model that produces the RRI combines detailed data from a variety of sources, beginning with permit data. Although remodeling permits are both timely and available house by house, reporting requirements and compliance vary widely among markets, and not all markets have complete data.
To fill in the gaps, the model draws on consumer reports of remodeling activity gathered from multiple semi-annual surveys of 60,000 households. Although not as timely as permit data, the information collected is more complete because a different 60,000 consumers are surveyed each time, and because the survey covers the full range of consumer behavior, including hobbies, brand use, and purchasing patterns.
The index for each MSA is then computed independently based on that market’s permits, consumer reported projects, and demographic and economic context. The result is a quarterly reading that provides insight into the level of remodeling activity within each market relative to its own history.
Remodeling activity alone, however, is not enough to draw meaningful conclusions about a market. The Remodeling Demand Index adds a measure of consumer demand by ranking markets according to the number of households that are most likely to undertake remodeling projects. Instead of comparing a market to its historical performance, the Demand Index compares markets to one another. By this measure, New York’s maximum Demand Index of 100 indicates that it has the most households likely to undertake remodeling.
The forecast component used within the rankings anticipates performance over the next four quarters. The forecast is based on an econometric model of the RRI that relies on the most recent forecasts for six economic variables proven to be highly correlated with differences in remodeling activity across markets and over time. Those six economic variables are Household Median Income, Household Growth, Median Existing Home Prices, Unemployment, Existing Home Sales, and Total Permits.
With respect to the demand identification of households, the RRI also leverages the Nielsen Claritas PRIZM NE Segmentation Model, which characterizes consumer demographic and lifestyle data in 66 segments that are classified according to level of affluence, age, urbanization, family status, and so on. By applying a housing-related overlay to these segments, Hanley Wood Marketing Intelligence (HWMI) has identified nine Housing Consumer Groups. After filtering these according to permit data and consumer survey data on home improvement, the RRI statistical model has identified three of these groups — Family Life, Elite, and Active Adult Elite — as correlated with remodeling.
These key households are 50% more likely than average to undertake a major home improvement project; collectively, they represent less than 24% of all households but are responsible for 40% of remodeling and well over half of all projects requiring a permit. In addition, more than 25% of these households report having done a home improvement project within a given year, a statistic that is constant in both good and bad years.
to download the complete RRI spreadsheet.
—Sal Alfano, editorial director, REMODELING.
Of nine core "Housing Consumer Groups," these three consistently turn up in analysis of both the overall tendency to remodel and the...
Detailed analysis of the Minneapolis metro area remodeling market using Residential Remodeling Index data.