The average remodeler’s profit margins have risen since 2011 and the future shows promise, according to data analysis the National Association of Home Builders (NAHB) released at the 2017 International Builder’s Show.
Forced to adapt to survive during the recession, policies that were put in place have continued to benefit remodeler’s profit margins, with the average gross profit margin rising from 26.8 percent in 2011 to 28.9 percent in 2015 according to NAHB’s Cost of Doing Business Study. Net profit margin also increased from 3.0 to 5.3 percent during the same period.
Remodelers suffered during the recession, but not quite as significantly as other sectors of the residential construction industry.
“It declined at the same time as everything else in residential construction, but not quite as far,” said Paul Emrath, vice president for survey and housing policy research for NAHB. “It’s recovered much better than single family. It’s now back to 2003, 2004 level but still well below the peak. So it’s got room to grow, but not at the double digit rate of single family.”
Emrath sees remodeling growth continuing, projecting 1 percent market growth in 2017 and 2 percent in 2018.
One of the limiting factors for continued growth across all residential construction sectors is labor shortage.
“Job openings are rising, and the unemployment rate is low,” said Robert Dietz, chief economist and senior vice president for economics and housing policy for the NAHB. “The rate of unfilled jobs in the construction sector right now is actually higher than it was during the building boom.”
Dietz estimates the job open rate was 2.5 percent during the height of the building boom, while today’s job open rate hovers at 2.7 percent. Even as positions remain unfilled, Dietz says wages should rise for the construction industry as a whole. Those higher wages will hopefully attract the next generation of worker. Dietz estimates the current median age of construction employees is 42, and only an influx of new workers will bring that average down.
The remodeling industry does have two growing trends that Dietz sees as benefitting the industry, energy efficiency and aging in place. The NAHB’s conservative growth estimate for the next two years is predicated on the belief that many remodeling jobs take place immediately before or after a home purchase and its estimate for existing home sales remains flat. Both aging in place and increasing energy efficiency benefit homeowners looking to remain in their current homes and thus could see growth even if existing home sales remain flat.
The average remodeler is still doing better today than they were doing five years ago, and there’s still room to grow.
“If you look at the average remodeler and look at any of these measures of finances, total assets, total revenue, gross or net profit, return on assets, return on equity, they all increased between 2011 and 2015,” said Emrath.
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