The softening labor market is taking its toll on the Remodeling Market Index (RMI), which slipped two points to 45 for Q2 2012, according to the National Association of Home Builders (NAHB). This downward adjustment comes after the RMI reached 48 twice in 2011, the highest reading since 2006.

The RMI is based on a quarterly survey of NAHB remodelers that asks them to rate current remodeling activity along with indicators of future activity, i.e., calls for bids. An RMI below 50 indicates that more remodelers report market activity is lower (compared to the prior quarter) than those who report higher market activity.

In Q2 2012, the RMI component measuring current market conditions dropped to 46 from 49 in the previous quarter. The RMI component measuring future indicators of remodeling business remained unchanged at 44.

According to David Crowe, chief economist for the NAHB, the overall index dropped a couple of points from the Q1 2012 to Q2 2012 and the first quarter was down one point from a recent peak. “What I take from this is there was a rush in late 2011 an early 2012 from a lot of pent up demand for remodeling and that rush has worn off,” he explains. “We’re still in reasonably good shape and [the index] is still relatively high. I think we’ll still see some decent numbers in remodeling. We just had a little bit of a pause from the exuberance of the last two quarters.”

Looking Ahead to 2013

Unfortunately, all indicators of current market conditions fell: major additions and alterations to 42 (from 44), minor additions and alterations to 47 (from 52) and maintenance and repairs to 50 (from 51).

However, while current market indicators are on the skids, remodelers still have reason to be cautiously optimistic regarding the future: among the detailed RMI components, two important indicators of future activity increased in the second quarter: backlog of jobs was up three points to 46 and amount of work committed for the next three months was up a point to 43. 

Crowe advises remodelers to be cautious about the future. “We know there’s a lot of stumbling blocks left in the housing market,” he says. “The overall housing market will still depend heavily on economic growth and I think we will grow out of it.” He added that we are likely to continue to see some modest increases in remodeling activity as well as the overall housing market but it does have the potential “for something to derail it like the European situation, a fiscal cliff, or just general malaise in the overall economy." —Mark A. Newman, Senior Editor, REMODELING.

ABOUT THE RMI: The RMI is based on a quarterly survey of professional remodelers, whose answers to a series of questions were assigned numerical values to calculate two separate indexes. The first index gauges current market conditions and is based on remodelers' reports of major and minor additions and alterations, plus maintenance work and repairs, on both owner- and renter-occupied dwellings. The second index summarizes indicators of future remodeling activity and is based on remodelers' responses to questions about  calls for bids, amount of work committed for the next three months, job backlogs, and appointments for proposals.