Yet another economic indicator is giving remodeling pros reason to keep the Alka Seltzer in the top drawer, this time courtesy of the NAHB’s Remodeling Market Index. The RMI dipped to 43.9 during the second quarter from first quarter’s 46.5. Essentially, an RMI below 50 means that more remodelers reported lower activity from a previous quarter than those who reported higher activity.
These numbers will come as no surprise to anyone who has been paying attention to similar reports across the industry. Last week, the Leading Indicator of Remodeling Activity from the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University showed a possible 4% decrease in remodeling spending into the first quarter of 2012. While LIRA uses data dependent on the housing industry’s numbers, the RMI combines data from current remodeling activity with indicators of future activity, i.e., calls for bids. According to RMI, current market conditions for the second quarter of 2011 dropped to 44.8 from the first quarter level of 46.1 while future activity numbers dropped from 46.8 to 43 during the same period.
Despite this seeming downturn, it should be noted that even though the second quarter had a marked decrease from the first quarter, it is still an overall gain compared to the previous five years, according to Rose Quint, NAHB’s assistant vice president of survey research, Economics and Housing Policy. “Yes, it was a decline, but it’s the second highest reading in over three years or so. It’s a step back but it’s only topped by the previous reading,” she says. “We thought after the first quarter [of 2011] that the remodeling industry had turned the corner and was on an upward trend, but what we see is that the overall slowdown in the economy affected the home improvement market just like it did the home construction market.”
Scared Consumers
As with last week’s LIRA data, much of the cause for the falling numbers is related to consumer confidence. ”[Consumers] are obviously not confident enough to take on discretionary remodeling projects,” Quint says. “They took a step back in the second quarter but it’s still better than any quarter since late 2007.” She added that the lending environment is also not helping the market. “Consumers cannot get loans even if they wanted to. Some are not confident enough to ask for the loan and those that are can’t get the loan.”
However, when looked at from a regional standpoint there appears to be at least a glimmer of hope, depending on your market. While current market conditions shrank in the Midwest (down to 44.4 in the second quarter from 47.1 in the first quarter) and the South (down to 42.9 from 46.1), there was a slight uptick in both the West (up to 48.2 from 46.1) and the Northeast (up to 48.1 from 46.1).
The current market number is comprised of a variety of indices specific to the remodeling industry. Among the current market indicators that showed a drop from the first to the second quarters were major additions (down to 46.2 from 50.3 in the first quarter) and maintenance and repair (down to38.4 from 39.5). The data for minor additions stayed more or less the same, rising half a point to 48.5 from its first quarter level of 48.0. Likewise, indicators for future activity dropped as calls for bids shrank to 49.8 from 53.1; remodeling job backlogs dropped to 45.7 from 49.7; and proposal appointments dropped to 44.2 from 52.4. However, the amount of work remodelers have committed to for the next three months stayed basically unchanged with a minor increase of 32.3 from 32.1.
Quint maintains that despite the decrease in the RMI, things are still getting at least a little bit better. “We expect that remodeling will continue to bounce along this rocky bottom but we don’t expect the market to tank,” she says. “The increase [in the RMI] we’ve seen relative to 2009 and 2010 indicate that more people are now willing to get off the fence and take on some of these projects,” she says. “But there’s still a lot of hesitation out there because of the economy and the stringent lending environment. The desire is there but serious obstacles are in the way.”
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 next three months, job backlogs and appointments for proposals.
