Home Remodelers Betting on a Rebound

Residential contractors are hoping that tight-fisted consumers will decide they need a new bathroom. Or maybe it’s time for those old kitchen counters to go.
Perhaps it would be better to add another bedroom than move?
After three years of slumping business, builders anticipate that the home remodeling and improvement sector will pick up in 2012.
“We have been in a downturn and a weak market for a really long time,” said Paul Emrath, a researcher with the National Association of Home Builders. “But we are starting to edge up to the tipping point.
“The phones are ringing, people are calling and making appointments,” Emrath said last week at the association’s annual meeting in Florida. “But the next challenge is to turn those over into actual jobs.”
In 2011, U.S. residential remodeling added up to an estimated $279 billion, about the same as in 2010 but down almost 15 percent from 2007.
And new-home starts have fallen more than 70 percent around the country since the market peak in 2005.
“All things considered, remodeling has held up well in this cycle,” said Kermit Baker, a senior fellow at Harvard University’s Joint Center for Housing Studies.
“We think we are going to see better numbers coming out of the industry as we move into the second half of this year and into 2013,” he said.
Upward trend
The National Association of Home Builders is forecasting an almost 9 percent increase in remodeling this year and more than an 11 percent jump nationwide in 2013.
“We are still not going to be back to where we were at the peak,” the NAHB’s Emrath said. “It’s difficult to get financing.
“And a related problem is the decline in house prices — people don’t have as much equity,” he said. “People may not want to remodel when they are seeing house prices going down.”
More than half of the home remodeling projects last year cost in excess of $25,000.
And total home remodeling and improvement expenditures now add up to more dollars than new-home construction, according to the builders association.
Remodeling accounts for close to 70 percent of U.S. residential construction expenditures.
The biggest share of home improvement spending, roughly 20 percent, goes for exterior repairs or upgrades. But kitchen and bathroom jobs are a close second at 19 percent of remodeling work.
Hold the glitz
Some of the glitzy fix-up jobs of years past are on hold, regardless of what they show on home decorating television shows.
“The growth we saw in the industry in the early and middle part of the last decade was driven by a lot of upper-end discretionary projects,” Baker said. “A lot of that is not going to come back.
“There is a lot of concern out there that the housing market has changed and people are making different decisions.”
Until nationwide home values improve, homeowners will be more conservative with their remodeling, Baker predicts. If pre-owned home sales pick up, that will help the industry, he said.
“The time of purchase — particularly if you are buying an older home — is the most common time for undertaking a home improvement project,” Baker said.
Previously foreclosed homes needing repairs will benefit remodelers as new owners get those properties in shape, he said.
Lenders also are spending money to improve distressed houses. Mortgage company Fannie Mae spent more than $600 million fixing up foreclosed properties last year, Baker said.
“We see a lot of potential fixing up these distressed properties to repair them for sale,” he said. “There are almost 2 million homes nationally that are likely to go into foreclosure sometime soon.
“There are over 2 million homes nationally that are already in the foreclosure process,” he said. “And there are about 400,000 homes that have come through the foreclosure process and are owned by banks.”
(Source: The Dallas Morning News, 02/11/12)