Residential remodeling will continue to trend upward after modest improvement in 2015, according to a panel of leading remodelers and industry experts at the 2016 International Builders’ Show in Las Vegas.
The National Association of Home Builders (NAHB), which hosted the press conference, projects that remodeling spending for owner-occupied single-family homes will increase 1.1 percent in 2016 and an additional 1.9 percent in 2017.
Professional remodelers from around the U.S. agreed with that forecast, citing increased financial security among their clients as a key driver.
“Our remodeler members have regained confidence in the market as homeowners move forward with new remodeling projects, as reflected in the positive fourth-quarter results of NAHB’s Remodeling Market Index (RMI),” said 2016 NAHB Remodelers chairman Tim Shigley, a remodeler from Wichita, Kansas.
Consistent yet moderate improvement
The RMI, a survey of professional remodelers that asks whether conditions have gotten better or worse since the last quarter, has remained in the mid-to-upper 50s for the past year and reached 58 in the fourth quarter of 2015.
An RMI above 50 indicates that more remodelers report market activity is higher than report it is lower. The overall RMI averages ratings of current remodeling activity with indicators of future remodeling activity.
A steady appreciation in house prices will enable more owners to tap into their home equity and fund remodeling projects, said Paul Emrath, vice president of survey and housing policy research for NAHB.
NAHB estimates house prices will increase 4.6 percent in 2016 and 4.3 percent in 2017 after making similar strides in 2015, according to the S&P/Case-Shiller National Home Price Index, the leading measure of U.S. residential real estate prices.
Census Bureau revises spending estimates
The Census Bureau recently revised how it measures remodeling spending for owner-occupied housing, dating back to 2005. As a result, the historical series now correlates much better with NAHB’s RMI.
“Census estimates now indicate that improvements to owner-occupied housing increased at a real rate of 1.3 percent last year, which is consistent with NAHB’s expectations and our measure of remodelers’ sentiment,” Emrath said.
Existing home sales have slowed down and will be a drag on improvement spending in 2016 (NAHB projects they will decrease by 0.6 percent annually), but sales should improve in 2017 (NAHB estimates an annual increase of 5.7 percent), Emrath added.
Remodelers choose the majority of products
As part of its fourth-quarter survey, NAHB asked professional remodelers who chooses the products in their typical project. The association found it varies based on the product, but remodelers determine the product 56 percent of the time, followed by customers at 23 percent, subcontractors at 14 percent and all others at 7 percent.
Remodelers usually select basic and exterior building products such as lumber and siding, as well as windows and doors. Customers are more likely to choose interior finishes, such as flooring, tile, lighting, plumbing fixtures and especially appliances.
Approximately 50 percent of the time, remodelers pick out the cabinets, while customers choose them about 40 percent of the time. Subcontractors usually are only important in determining electrical and HVAC equipment.
Projects expanding beyond kitchens and baths
Shigley said his company, Shigley Construction, a design-build firm, has taken increased calls for work as housing values in Wichita appreciate more than 3.4 percent. That has led to a 25-percent increase in activity on the design side, and a majority of the projects continue to concern the kitchen and bath, which are often tied to a whole-house or partial renovation.
Jeff Grantham, owner of Grantham Building and Remodeling in Petoskey, Michigan, said most of his clients seek to modernize their homes, including open floor plans, taking out bulky whirlpool tubs and integrating other universal design concepts.
“While the economic recovery has brought about a surge of remodeling activity for second homes in our market, access to credit continues to hamper the remodeling market’s full potential locally,” Grantham said.
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