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Rentals the Weak Side of Third-Quarter Remodeling Market
Remodeling activity slowed moderately in this year’s third quarter, according to NAHB’s Remodeling Market Index (RMI).
The component of the index gauging current market conditions dropped 1.5 points from 52.4 to 50.9 in the third quarter, while the future expectations of the 500 remodelers surveyed nationally each quarter for the seasonally-adjusted index moved down from 52.8 to 51.8.
“A softening of the overall rental market has led to an acute decline in rental remodeling expenditures,” said Remodelors™ Council Chairman Don Novak, CGR, CAPS, CGB, a remodeler from Cedar Rapids, Iowa. “Remodeling activity remains strong for owner-occupied units, driving the continued positive outlook.” Owner-occupied housing represents 69% of total housing in the U.S.
Regionally, strong improvement in the Midwest, which rose from 44.7 to 50.2 on the index, was offset by slight declines in the South and West, down from 55.7 to 53.7 and 58.5 to 56.3, respectively, and a sharp drop in the Northeast from 59.1 to 43.6.
“The small declines in the overall RMI measures of current market conditions and expectations for the future reflect relatively firm readings for owner-occupied housing but serious deterioration for the rental housing market,” said NAHB Chief Economist Dave Seiders. “A massive amount of equity in the hands of home owners bodes well for this segment of the remodeling market down the line, and declining vacancies in rental housing should improve the prospects for remodeling of the rental stock before long. Furthermore, remodeling activity will be stimulated by recovery from this year’s unprecedented hurricane damage.”
Owner-occupied units saw almost no change in current market activity; they dropped one-tenth of a point to 56.2. Renter-occupied units declined from 45.8 to 37.9. Future expectations for owner-occupied units moved slightly downward, from 55.8 to 55.4, while the outlook for renter-occupied units skidded sharply from 43.0 to 31.0.
In a special question added to the third-quarter survey for the index, remodelers were asked about prospects for the growth of their businesses.
Participating remodelers said that they expected their dollar volume to grow 11% this year to an average of $1.353 million, up from $1.217 million in 2004.
Fifty-eight percent of the remodelers who were surveyed said that they plan to grow their businesses from within, while 4% said they expected to grow through an acquisition or merger.
Four out of 10 businesses said they had no plans to expand into other areas of work or new geographic regions. Approximately 11% reported that they had been approached by another business interested in acquiring them, an indication that chances for a major consolidation in the industry are not imminent.
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