Sunnier Days Ahead for Remodeling Industry: Report

As the ailing economy tightens homeowners’ wallets, for most, now isn’t the time to make-over the kitchen, install new wood floors or even replace those chipped baseboards. That fresh paint job just might have to wait, and those out-dated fixtures in the bathroom, well, what’s another couple years? As a result of the downturn in home improvements, the remodeling industry has hit a near standstill, similar to what we’ve seen in home building. “Like the overall housing market, the US home improvement industry is mired in a severe downturn,” said a report from the Joint Center for Housing Studies at Harvard University, released Wednesday. However, the study predicts the correction in the remodeling industry “should be much less severe” than in home building, for a few reasons. For starters there is a continued interest in “greening” America’s homes to make them more energy efficient, as consumers search for a means to lower energy bills. According to the Harvard study, homeowners spent over $52 billion of their improvement expenditures on energy-related projects, up from the inflation-adjusted figure of $33 billion a decade earlier. Then, there is the need for rental repairs. The rental housing stock is in “dire need” of improvement after years of underinvestment, the report explained. During the housing boom, weak demand for rentals discouraged owners from upgrading their properties. Not to mention, rental properties are 36 years old on average. The report also said the increasing number of immigrant homeowners will contribute to a rise in remodeling. “Not only do immigrants represent a growing share of new household formations, but they are also very active in the improvement market,” the study said. “Immigrants are younger households, heavily concentrated in their 30s and 40s — the ages when families are growing and changing the uses of their homes, and therefore the ages when homeowners begin to spend more on remodeling.” Remodeling may also reap benefit from — oddly enough —  the wave of foreclosures currently underway. Foreclosed home are often times abandoned or vandalized; and therefore, will need rehabilitation as the housing market begins to recover. Areas where foreclosure rates are high may therefore see a resumption of home improvement spending as markets turn upward. Cognizant of this potential need, the Housing and Economic Recovery Act of 2008 has actually allocated $4 billion to state and local governments for the redevelopment of abandoned and foreclosed properties. There is no doubt the remodeling industry is struggling to date, but “the foundation of the remodeling industry is solid,” according to the report. And when the housing market takes to the road of recovery, the “future growth in home improvement activity is assured.” It’s possible the remodeling market may even come out stronger than it was before. “The residential supply chain…now more fully understands the benefit of serving the remodeling sector as a strategy for balancing out construction cycles,” explained the report’s authors. “Focusing on this customer base and assisting remodeling contractors in improving their operations will help to create a more professional industry.” Write to Kelly Curran at kelly.curran@housingwire.com. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.