Remodeling Trends and Outlook - Joint Center for Housing ... · JOINT CENTER FOR HOUSING STUDIES...
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JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Kennedy School of Government
Harvard University
Copyright 2008
www.jchs.harvard.edu
Remodeling Trends and Outlook
Kermit Baker
Remodeling Futures ConferenceApril 15, 2007
JOINT CENTER FOR HOUSING STUDIESHarvard University
www.jchs.harvard.edu
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Kennedy School of Government
Harvard University
Copyright 2008
The Size of Home Remodeling Market is Estimated to Have Declined in 2007
108 121 136162 172
205231 247 24341
4044
4857
5549
51 52
0
50
100
150
200
250
300
350
1995 1997 1999 2001 2003 2004(e) 2005 2006(e) 2007(e)
Rental spending
Owner spending
Billions of dollars
Sources: JCHS tabulations of 1995-2005 American Housing Survey (AHS) and the US Department of Commerce Survey of Expenditures for Residential Improvement and Repairs (c50 reports).
161149180
210
280
229
260
298 295
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Kennedy School of Government
Harvard University
Copyright 2008
Owner Remodeling Spending Began to Soften in Late-2006 According to C50 Estimates, and Has Shown Annual Declines Since in Mid-2007
148.7150.8
158.0
166.3170.1
178.2181.0
177.7175.4 173.7
165.5
18.6%
15.9%
6.8%
3.1%
-2.5%
-8.6%
18.5%
14.6%18.2%
14.4%
20.4%
$100
$110
$120
$130
$140
$150
$160
$170
$180
$190
2005 -Q1
Q2 Q3 Q4 2006 -Q1
Q2 Q3 Q4 2007 -Q1
Q2 Q3-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Homeowner Remodeling ActivityFour-quarter moving totals($ billions)
Annual Moving Rate of Change
Source: U.S. Census Bureau, Residential Improvements and Repairs Statistics (C50).
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Kennedy School of Government
Harvard University
Copyright 2008
But While Spending by Owners Has Been Slowing, Spending on Rental Units Has Been Growing
170.1178.2 181.0 177.7 175.4 173.7
165.5
48.6 48.8 49.2 50.5 49.9 51.8 52.1
18.2%
6.8%
-7.9%
0.3%
3.7%
6.3% 5.9%
-3.8%
14.6%
2.7%
-8.6%
-2.5%
3.1%
14.4%
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
2006- Q1
Q2 Q3 Q4 2007- Q1
Q2 Q3 2006-Q1
Q2 Q3 Q4 2007-Q1
Q2 Q3-10%
-5%
0%
5%
10%
15%
20%
Homeowner Remodeling ActivityFour-quarter moving totals($ billions)
Annual Moving Rate of Change
Source: U.S. Census Bureau, Residential Improvements and Repairs Statistics (C50).
Owner-occupied units Rental Properties
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Kennedy School of Government
Harvard University
Copyright 2008
Most Remodeling Indicators Have Turned Negative
Contractor payrolls
Remodeler business expectations (RMI)
Existing home sales
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Kennedy School of Government
Harvard University
Copyright 2008
Remodeling Contractor Payrolls Are Declining
274.8
280.4283.5
286.5291.3
295.9
308.7 310.2 310.8 309.9306.5 305.0
301.0
8.4%
7.2%
6.1%
5.0%
6.5%
-1.2%
7.8%
2.9%
-1.8%
6.2%5.6%
6.0%
7.2%
240
260
280
300
320
2005 -Q1
Q2 Q3 Q4 2006 -Q1
Q2 Q3 Q4 2007 -Q1
Q2 Q3 Q4 2008-Q1(e)
-4%
-2%
0%
2%
4%
6%
8%
10%
Residential Remodelers, All Employees, 4-Quarter Moving Totals (Thousands)
Source: U.S. Department of Labor, Bureau of Labor Statistics.
Annual Moving Rate of Change (%)
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Kennedy School of Government
Harvard University
Copyright 2008
Remodelers’ Future Expectations Have Been Negative Since Late 2005, and Continue to Drop
57.8
52.4 52.454.0 53.6
52.8
47.548.9
43.545.4 46.0 46.5
44.143.3
37.9
51.8
30
35
40
45
50
55
60
2004- Q1
Q2 Q3 Q4 2005- Q1
Q2 Q3 Q4 2006- Q1
Q2 Q3 Q4 2007- Q1
Q2 Q3 Q4
Remodeling Market Index: Future Expectations, SA
Source: NAHB Economics Group- Remodeling Market Index, Qrtly. Survey of Remodelers.
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Kennedy School of Government
Harvard University
Copyright 2008
Pending Home Sales Are Falling
124.5 125.4 124.4123.1
119.2
111.9109.2
105.6
100.5
96.4
91.7
122.6
114.3
6.3%
2.9%
8.8%
-11.4%
10.7%
0.4%
-4.3%
-8.9%
-16.0%
-12.1%
-10.1%
-13.9%
-11.3%
80
90
100
110
120
130
2005 -Q1
Q2 Q3 Q4 2006 -Q1
Q2 Q3 Q4 2007 -Q1
Q2 Q3 Q4 2008-Q1(e)
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Pending Home Sales Index, NSA, four-quarter moving average
Annual Moving Rate Of Change
Source: National Association of Realtors.
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Kennedy School of Government
Harvard University
Copyright 2008
Leading Indicator of Remodeling Activity Points to Further Declines Through This Year
$149$151
$158
$170
$178$181
$178$175 $174
$166
$175$173 $172
$164$166$166
20.4%
-4.8%
-1.1%-0.9%-1.7%-1.7%
-8.6%
-2.5%
3.1%
6.8%
14.6%
18.2%
14.4%
15.9%
18.5%18.6%
$100
$110
$120
$130
$140
$150
$160
$170
$180
$190
2005-
1 2 3 4200
6-1 2 3 4
2007-
1 2 3 4200
8-1 2 3 4
-10%
-5%
0%
5%
10%
15%
20%
25%
Homeowner Remodeling ActivityFour-quarter moving totalsBillions of $
Four-Quarter MovingRate of Change
Source: Joint Center for Housing Studies.
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Kennedy School of Government
Harvard University
Copyright 2008
The Geography of Remodeling
Areas likely to see steeper/milder downturns in remodeling spending in 2008:
Metro areas with greatest/least declines in sales of existing homes – affects opportunities to remodel
Metro areas with greatest/least home price declines –affects homeowner ability and willingness to remodel
Based on trends in top 50 metro areas in the U.S.
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Kennedy School of Government
Harvard University
Copyright 2008
Markets Least Vulnerable to a Remodeling Downturn Concentrated in Industrial Midwest, Texas, and Pacific N.W.
Top 10 markets for house prices and existing home sales of 50 largest metro areas
Sources: OFHEO and Moody’s Economy.com estimates of state level total home sales from NAR.
Note: changes in prices and sales measured over past 12 months.
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Kennedy School of Government
Harvard University
Copyright 2008
Markets Most Vulnerable to a Remodeling Downturn Concentrated in California and Florida
Bottom 10 markets for house prices and existing home sales of 50 largest metro areas
Sources: OFHEO and Moody’s Economy.com estimates of state level total home sales from NAR.
Note: changes in prices and sales measured from high for this cycle.
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Kennedy School of Government
Harvard University
Copyright 2008
Performance of Larger Contractors During Remodeling Market Downturn
Revenue growth has slowed
Contractors focused on replacement and systems upgrade projects have fared better
Larger firms have reported more stable revenue
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Kennedy School of Government
Harvard University
Copyright 2008
Revenue Growth for Larger Remodeling Contractors Has Slowed Recently
7.4%
4.4%
8.1%
12.5%
7.5%
4.4%
0%
5%
10%
15%
2001 2002 2003 2004 2005 2006
Median annual rate of growth in revenues
Source: Qualified Remodeler magazine Top 500 contractors; 2000-2006.
Note: Analysis used top 400 firms each year that reported revenue for that year and the previous year; outliers eliminated from 2006 estimate.
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Kennedy School of Government
Harvard University
Copyright 2008
While Averaging 4% Growth, Large Contractors Reported Tremendous Variation in Their Performance in 2006
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
$0 $5 $10 $15 $20 $25 $30 $35 $402005 Revenue in Millions (topcoded at $40M)
Design/Build
Full-Service
Specialty
Other
Percent Change in Revenue, 2005-2006
Trend line
Note: Analysis used top 400 firms that reported revenue for 2005 and 2006; change in revenue outliers were eliminated.
Source: Joint Center analysis of Qualified Remodeler magazine Top 500 contractors; 2005 and 2006.
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Kennedy School of Government
Harvard University
Copyright 2008
Growth Slowed the Most for Design/Build and Full Service Contractors
4.4%
1.9% 1.7%
5.7%
12.4%
0%
5%
10%
15%
All Design/Build Full-Service Specialty Other
Median annual rate of growth in revenues, 2006
Note: Analysis used top 400 firms that reported revenue for 2005 and 2006; change in revenue outliers were eliminated.
Source: Qualified Remodeler magazine Top 500 contractors; 2006.
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Kennedy School of Government
Harvard University
Copyright 2008
In 2006, Specialty Contractors and Larger Contractors Reported Less Variation in Revenue
80
85
90
95
100
105
110
115
120
Desig
n/Bui
ld
Full-
Servi
ce
Spec
ialty
Other
by Contractor Focus by Contractor Revenue
Note: Analysis used top 400 firms that reported revenue for 2005 and 2006; change in revenue outliers were eliminated.
Source: Joint Center analysis of Qualified Remodeler magazine Top 500 contractors; 2005 and 2006.
80
85
90
95
100
105
110
115
120
unde
r$5
Mill
$5-$
10 M
ill
$10-
$20
Mill
$20+
Mill
Relative variation in revenue growth, 2005-2006 (100=standard deviation for all firms)
JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Kennedy School of Government
Harvard University
Copyright 2008
Implications for Remodeling Outlook
Remodeling industry is slowing; weakness expected to continue through the year.
Markets with least declines expected to be concentrated in industrial Midwest and South Central states; markets with greatest declines likely to be in California, Florida, and Southwest.
Larger contractors specializing in replacement projects have fared better recently; larger firms likely to see more stability in revenue during this downturn.