But with mortgage rates ratcheting up from their 45-year lows of early summer and refinancings falling back into a more normal range, “we now have to drive this market the old-fashioned way,” said Baker, through increases in personal income and jobs, both of which seem to be in the cards heading into next year.
The remodeling industry has “good solid momentum to drive on fundamentals,” he noted, and in the meantime the stimulative effects of the cash-outs taken in recent months won’t fizzle out overnight.
One trend in the industry worth noting, Baker said, is “growth focusing on upper-end projects in upper-end homes.”
In 1993-1995, 39.6% of the spending on improvements occurred in homes valued at less than $100,000 and 18.2% was in homes worth more than $250,000, he said. By 2000-2002 those shares had reversed: 20.7% of improvements were in the lower-priced category and 35.6% occurred in the most expensive group.
The continuation of this trend will depend upon house appreciation, which appears to be settling in at a slower rate of increase than the galloping increases characteristic of recent years, and as cash-out financings slow, the disparity between the upper end and the bottom of the market will probably “close a bit,” he predicted.
David Seiders, chief economist of NAHB, added that even as the re-fi market is “losing tremendous momentum,” home owners will still be able to get at their equity at relatively low interest rates, which are typically priced at 1% over the prime rate. The prime rate is currently 4% and expected to remain at that level for most of next year.
Seiders predicted that annual home price appreciation will hold in the 5% range and that “we will continue to see strong price increases in home owner equity” even as home owners continue to borrow against it.
Weakness in the remodeling market will be focused on the multifamily side, Seiders said.
Multifamily accounted for about 30% of total remodeling activity last year, but that share will be “edging down over time.”
The Joint Center’s RAI is published during the third week after the close of each business quarter, a full two quarters before the U.S. Commerce Department’s data on residential improvements and repairs becomes available.
BuilderBooks.com Offers Publications About Remodeling
BuilderBooks.com offers a variety of publications about remodeling. To view or purchase these publications, click here.
University of Housing Offers Courses and Designation Programs
The NAHB University of Housing offers a variety of business management courses and professional designation programs that set builders and remodelers apart from the competition. For a complete list of current offerings, click here.
'PREP: Your First Step to CGR' offered at IBS
PREP is your first step to becoming a Certified Graduate Remodelor™ (CGR). For more information on PREP offerings at IBS, January 18 and 22, in Las Vegas, click here.
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