The Remodeling Market - Builders' Show Remodeling Market International Builders Show January 21,...

The Remodeling MarketInternational Builders Show January 21, 2010

Paul Emrath

VP-Survey and Housing Policy Research

Outline

• NAHB Remodeling Market Index (RMI)

• NAHB forecasts

• Legislative/regulatory developments

• Impacts of remodeling on income, jobs, taxes

Remodeling Market Index

• Quarterly survey of professional remodelers

• 400+ responses per quarter (500+ for 2009 Q4)

• Series of questions on whether conditions have improved or gotten worse since previous quarter

• Two indices:

– Current conditions (remodeler ratings of major adds &

alterations, minor adds & alterations, maintenance &

repair)

– Indicators of future activity (appointments for proposals,

calls for bids, commitments for work, backlog)

NAHB Remodeling Market Index (Seasonally Adjusted):

Current Market Conditions

0

10

20

30

40

50

60

1st Qtr. 2001

1st Qtr. 2002

1st Qtr. 2003

1st Qtr. 2004

1st Qtr. 2005

1st Qtr. 2006

1st Qtr. 2007

1st Qtr. 2008

1st Qtr. 2009

Ind

ex

better/worse line

Source: NAHB Economics and Housing Policy Group: Remodeling Market Index, Qrtly.

Survey of Remodelers.

NAHB Remodeling Market Index (Seasonally Adjusted):

Indicators of Future Activity

0

10

20

30

40

50

60

1st Qtr. 2001

1st Qtr. 2002

1st Qtr. 2003

1st Qtr. 2004

1st Qtr. 2005

1st Qtr. 2006

1st Qtr. 2007

1st Qtr. 2008

1st Qtr. 2009

Ind

ex

better/worse line


Survey of Remodelers.

NAHB Remodeling Market Index (Seasonally Adjusted)

2009

Q1 Q2 Q3 Q4(P)

CURRENT MARKET CONDITIONS 34.5 38.1 39.8 36.4

Major Additions And Alterations ($25,000 or more) 32.7 38.2 41.9 40.0

Minor Additions And Alterations

(Less than $25,000)39.1 41.5 43.2 40.7

Maintenance and Repair 30.4 33.6 33.1 27.1

INDICATORS OF FUTURE ACTIVITY 30.0 34.2 38.7 31.4

Calls for Bids 34.2 38.8 46.5 37.5

Amount of Work Committed for next 3 months 21.8 23.3 27.5 21.9

Backlog of Remodeling Jobs 28.5 34.4 37.2 31.9

Appointments for Proposals 35.3 40.3 43.5 34.4


Survey of Remodelers. P = Preliminary Numbers

NAHB Forecasts

• Residential Fixed Investment (RFI) a component of GDP

• Remodeling a component of RFI

• Less information available due to cutbacks at Census Bureau

– SORAR discontinued

– No maintenance and repairs

– No improvements in rental properties

• Lobbying efforts for new Census remodeling survey ongoing

• NAHB forecasts Census series, integrates into GDP forecast

Real GDP Growth

-10%

-5%

0%

5%

10%

15%

20%

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Q/Q Percent Change, SAAR

Residential Fixed Investment

0

100

200

300

400

500

600

700

800

900

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Billions 2005$, SAAR

-

20

40

60

80

100

120

140

160

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Residential Remodeling:

Owner-Occupied ImprovementsBillions 2005 $, SAAR

Influences on Remodeling Markets

• Generally weak economy

– labor markets

– consumer confidence

• Problems with home equity loans

– Values fall, equity reduced

– Sometimes made worse by faulty appraisals

– Even with equity, lenders reluctant

• Competition from builders diversifying into remodeling

• Legislative/regulatory developments

– Lead based paint

– “Green” remodeling

– Remodeling induced by Home Buyer Tax Credit

Employment Change

-8

-6

-4

-2

0

2

4

6

8

10

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Q/Q Percent Change, SAAR (00,000)

Unemployment Rate

0

2

4

6

8

10

12

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Percent

Consumer Confidence/Sentiment

0

20

40

60

80

100

120

140

160

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Conference Board

Consumer Confidence

Index

U of Michigan

Consumer Sentiment

Index

House Prices

0

20

40

60

80

100

120

140

160

180

200

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

January 2001 = 100

Case-Shiller

FHFA

3.28

2.0

2.5

3.0

3.5

4.0

4.5

5.0

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Median House Price / Median Income

Avg = 3.2

House Prices Relative to Income

House Prices and Income – Trend, Peak and Current

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

220%

240%

U

S

O

H

M

I

N

V

G

A

N

H

I

N

A

R

A

L

N

M

W

Y

A

Z

A

K

C

A

W

V

M

T

M

O

C

O

K

S

I

L

I

D

C

T

M

N

T

N

R

I

M

S

H

I

S

D

K

Y

N

E

N

D

F

L

O

K

M

E

S

C

I

A

U

T

T

X

V

T

D

E

N

C

P

A

M

A

L

A

V

A

W

I

W

A

O

R

D

C

N

Y

M

D

N

J

Percentage of Historical Trend

Source: US Census Bureau, National Association of Realtors

FLCANV

AZ

NAHB HMI Builder Survey:

Have you experienced appraisals…

Yes, 59%

No, 41%

Below sales price? Below cost?

Yes , 56%

No, 44%

Competition from Builders

Survey of Builders: If diversified in 2009 or plan to diversify during in 2010, into which activities?

35%

25%

17%

22%

24%

26%

66%

No, no plans

Other

Owning/operating/managing real estate

Subcontracting

Light commercial construction

Commercial remodeling

Residential remodeling

Source: BEC Survey, Dec. 2009. NAHB Echp.

Survey of Builders: If diversified in 2009 or plan to diversify during in 2010, into which activities?


NAHB HMI Builder Survey: If diversified in 2009 or plan to diversify during 2010, into which activities?




Lead Based Paint Regulation

• Rule will take effect on April 22, 2010

• As first proposed, mandated lead-safe work practices in pre-1978 homes with pregnant women or children

– work area containment

– prohibited practices

– waste disposal

– clean-up

• In October, EPA proposed extension to cover all pre-1978 housing, irrespective of occupants

• Cost of compliance could discourage home owners from hiring professional remodelers

Professional Remodeling JobsAnd Units Targeted by Lead Paint Regulation

Source: NAHB tabulations of data from the 2007 American

Housing Survey, U.S. Census Bureau and HUD

69%

31%

Jobs in Units Built 1980 or Later

Jobs in Units Built Before 1980

Green Remodeling

• American Existing Home Retrofit Tax Credit (25C)

– Extended through 2010 & increased by ARRA legislation

– 30 percent of cost, up to $1,500

• Wind, Solar, Geothermal and Fuel Cell Tax Credit (25D)

– 30 percent of cost, no cap

– In effect through 2016

• Pending federal legislation (e.g., Home Star Retrofit Bill)

• State programs

• RMI survey periodically contains special green-related questions

– Most recently, Q3 2009

Calls for work to improve the energy efficiency

of the home during the last 3 months

4%

5%

61%

25%

5%

0% 10% 20% 30% 40% 50% 60% 70%

Decreased significantly

Decreased somewhat

No change

Increased somewhat

Increased significantly

Source: Remodelers Market Index Special Questions, 3rd Qtr. 2009, NAHB EcHp.

Calls for work to improve the energy efficiency

of the home during the last 3 months - HISTORY


2009 2008 2006 2005

3rd

Quarter

3rd

Quarter

3rd

Quarter

4th

Quarter

Increased Significantly 5% 5% 2% 3%

Increased Somewhat 25 21 22 21

No Change 61 60 70 69

Decreased Somewhat 5 4 2 2

Decreased Significantly 4 10 4 5

Responses 409 497 393 416

Top 5 energy related savings products

commonly installed during the past 3 months

53%

58%

60%

70%

87%

0% 20% 40% 60% 80% 100%

High efficiency HVAC systems

Insulated exterior doors

Argon gas windows

Upgraded insulation

Low-e windows


Top energy related savings materials and

products– Increase in use from 2001

34%

49%

25%

13%

43%

60%

39%

33%

0% 20% 40% 60% 80%

High efficiency kitchen appliances

Argon gas windows

UV coated windows

On demand water heaters

2009 2001


Green Practices Adopted by Remodelers

5%

51%

61%

70%

78%

83%

86%

91%

94%

0% 20% 40% 60% 80% 100%

Other

Waste management system

Use water sense fixtures and/or toilets

Use recycled and recyclable products

Use OSB rather than plywood

Use alternative to dimensional lumber

Use energy star appliances

Use energy efficient windows

Use material/products easily available


Percent of jobs completed in 2009 using the

federal 25C & 25D energy efficiency tax credits

2%

3%

10%

45%

40%

0% 10% 20% 30% 40% 50%

75% or more

50% to 74%

25% to 49%

1 % to 24%

0%

Median = 5%


Home Buyer Tax Credit

• $8,000 credit for first-time buyers expired after Nov 2009

• Worker, Homeownership, and Business Assistance Act

– Extended credit through sales contracts signed by April 30,

closed by June 30, 2010

– Relaxed income limits

– New $6,500 credit for repeat buyers

• Impact on remodeling?

Analyzing a Home Buyer Tax Credit:Buyers spend more than average on remodeling

Source: NAHB tabulations of data from the Consumer Expenditure Survey, U.S. Bureau of

Labor Statistics. See “Spending Patterns of Home Buyers”

http://www.nahb.org/generic.aspx?sectionID=734&genericContentID=106491&channelID=311

New

Home

Existing

Home

Property Alterations & Repairs:

Bathroom/ Kitchen/ Room addition $0 $127 $72

Other addition $0 $220 $117

Bathroom/Kitchen remodeling $231 $695 $325

Other interior remodeling $44 $394 $130

Painting $158 $266 $119

New fence $219 $128 $45

New drivew ay or w alk $339 $80 $51

Other outside addition or alteration $1,377 $410 $179

Total alterations and repairs $4,275 $4,642 $2,413

1st Year After

Buying HomeNon-

Moving

Ow ners

Single-Family Detached Home Owners' Average

Annual Spending on Various Items


Annual Spending on Repairs and Alterations:

Differences persist after statistically controlling for

characteristics of buyers

Source: Results of NAHB statistical model based on data from the Consumer Expenditure

Survey, U.S. Bureau of Labor Statistics. See “Spending Patterns of Home Buyers”

After Buying a

New Home If Not Moving Difference

$4,965 $4,225 $740

After Buying an

Existing Home If Not Moving Difference

$5,965 $3,955 $2,010

Typical New Home Buyer

Typical Existing Home Buyer

Source: NAHB models that estimate the “Economic Effects of a Policy to Stimulate Home Buying”


Number of new first-time buyers as a result of the policy

Number of additional trade-up buyers as a result of the policy

Credit users for whom the incentive was not necessary

1. Changes in sales and acquisitions

A. Initial induced sales and acquistions 116,093 housing units

B. Ripple sales from displaced owners buying homes 63,286 housing units

C. Vacant units absorbed 26,403 housing units

D. Rented units sold to owner-occupiers 20,109 housing units

2. Net changes in new construction

A. Additional single family homes built 38,472 housing units

B. Additional multifamily condominiums built 1,411 housing units

C. Additional manufactured housing produced 2,772 housing units

D. Impact on multifamily rental production -751 housing units

E. Aggregate net change in the value of new construction $9,839 million

3. Impact of additional home transactions

A. Broker services $1,435 million

B. Transaction-related spending $945 million

C. Property alterations $124 million

D. Appliances and furnishings $180 million

E. Aggregate increase in spending $2,684 million

46,437

69,656

5,267,192

Effects of Extended Home Buyer Tax Credit

Summary of Estimated Impacts, First Year After Enactment



Induced spending on

remodeling (in $million)

First-time buyers of new single family homes built for sale 1.6

First-time owners of new custom single family homes 0.3

First-time buyers of existing single family homes 27.6

Trade-up buyers of new single family homes built for sale 9.6

Trade-up owners of new custom single family homes 3.3

Trade-up buyers of existing single family homes 81.5

Total 123.8

Extended Home Buyer Tax Credit: Impact on Remodeling

Economic Impacts of Remodeling

• NAHB has national and local impact estimates

– to avoid confusion, pick one & stick with it

• Key impacts estimated:

– income

– jobs

– taxes

• Lot of interest in jobs recently

• Information available on web site

Presentation Title 35

Direct Impact of Home Building and

Remodeling on the U.S. Economy

Number of

Full-time Jobs

Wages and

Salaries

Proprietors'

Income

Corporate

Profits

Total

Income

All industries 1.11 $52,709 $13,810 $16,147 $82,667

Construction 0.54 $25,573 $6,601 $4,232 $36,406

Manufacturing 0.18 $8,136 $824 $4,529 $13,489

Wholesale and retail,

Transportation and warehousing 0.16 $6,432 $849 $2,307 $9,588

Finance and insurance 0.02 $1,487 $71 $1,459 $3,017

Real estate and rental and leasing 0.01 $315 $1,652 $758 $2,725

Professional, Management,

administrative services 0.12 $6,970 $2,191 $764 $9,924

Other services 0.09 $3,797 $1,623 $2,098 $7,518

Source: NAHB estimates, based primarily on the data from the U.S. Bureau of Economic Analysis.

Table 2. Income and Employment Impacts of New Residential Construction and Remodeling

on the U.S. Economy in 2008

$100,000 Spent on Remodeling

Direct Impact of Home Building and

Remodeling on the U.S. Economy

Average New

Single Family

Home

Average New

Multifamily

Rental Unit

$100,000 of

Remodeling

Total government revenue generated $89,216 $33,494 $30,217

Federal $66,467 $24,867 $23,656

Income taxes paid by employees $11,791 $4,452 $4,271

Income taxes paid by businesses $30,053 $11,120 $10,485

Social security taxes $22,414 $8,468 $8,124

Taxes on production & imports $2,209 $828 $776

State and local $22,749 $8,628 $6,561

Sales taxes $5,169 $1,987 $1,908

Income taxes paid by employees $3,080 $1,163 $1,116

Income taxes paid by businesses $6,586 $2,434 $2,288

Permit, hook-up, impact, etc. fees $7,915 $3,043 $1,250

Source: NAHB estimates, based primarily on the data from the U.S. Bureau of Economic Analysis.

Table 3. Fiscal Impacts of of New Residential Construction and Remodeling in 2008


Jobs and Income (in $Million) from Remodeling

Activity Induced by Extended Home Buyer Tax Credit

FTE (full time

equivalent)

workers

Wages and

Salaries

Small

Business

Persons'

income

Corporate

Profits

All industries 1,373 65.3 17.1 20.0

Agriculture, forestry, fishing and hunting 26 0.7 0.5 0.2

Mining 11 0.7 0.5 0.8

Utilities 4 0.3 0.2 0.5

Construction 663 31.7 8.2 5.2

Manufacturing 218 10.1 1.0 5.6

Wholesale trade 41 2.5 0.2 1.0

Retail trade 120 3.6 0.5 1.2

Transportation and warehousing 40 1.8 0.4 0.6

Information 13 0.9 0.3 0.8

Finance, insurance, real estate, rental, leasing 31 2.2 2.1 2.7

Professional and business services 147 8.6 2.7 0.9

Education, health care, and social assistance 1 0.0 0.0 0.0

Arts, entertainment, recreation, food services 22 0.6 0.1 0.1

Other services, except government 27 0.8 0.3 0.1

Government 10 0.6 0.0 0.0

Thank You

The Remodeling Market - Builders' Show Remodeling Market International Builders Show January 21,...

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