Remodelers Expect Slower Market Growth This Year
Remodeling activity slowed in the fourth quarter of 2005, according to NAHB’s Remodeling Market Index (RMI), although those polled for the latest report remained upbeat in their assessments for the year, even though their scores were slightly below those for 2004.
Ratings of current market conditions in the fourth quarter dropped to 46.6, down from 50.9 in the previous quarter, and future expectations dipped from 51.8 to 47.5. Any number over 50 indicates the view that market conditions are expanding.
“The rise in interest rates has slowed home owner refinancing, often used to fund remodeling projects,” said Remodelors™ Council Chairman Vince Butler, CGR, CAPS, GMB. “The less frenzied housing market also contributed to a lowering of market expectations in the final quarter, but we still expect to see solid growth in the remodeling industry in 2006.”
Owner-occupied units moved down in the final quarter of last year from 56.2 to 48.9, while ratings of the renter-occupied component of the index pushed up, from 37.9 to 40.4. As for future expectations, optimism about owner-occupied units showed signs of erosion, slipping from 55.4 to 50.4, while the outlook for multifamily remodels climbed from 31.0 to 37.8.
Remodeling accounts for 40% of all residential construction and improvement spending and more than 2% of the U.S. economy.
“The market could not sustain the record pace of home sales and housing production recorded in 2005, but we feel that 2006 will be a solid year in the housing sector with ongoing growth in the remodeling industry” said NAHB Chief Economist Dave Seiders. “Home owner equity will continue to support the industry, and last quarter’s rise in the rental components of the RMI bodes well for this year.”
Regionally, a strong pickup in optimism out West was offset by declines in the South, Midwest and Northeast. In the West, ratings of current market conditions improved from 56.3 to 58.5 and future expectations rose from 55.5 to 63.5. Respective ratings in the South dropped from 53.7 to 48.0 and from 58.0 to 46.6. Declines in the Midwest went from 50.2 to 41.l and 51.8 to 46.2, respectively; in the Northeast they went from 43.6 to 41.6 and 48.2 to 41.0.
Participants in the fourth-quarter survey were asked special questions about significant problems they were facing. Among the results:
- At the top of their list of concerns, 71% of remodelers said they were wrestling with high material costs last year, compared to 36% in 2001.
- Nearly eight in 10 expect material costs to be a significant problem in 2006.
- The availability of skilled labor was the number-two concern, with 67% of the remodelers identifying it as a problem in 2005 and equal numbers expecting the problem to persist this year.
- More than three out of four remodelers said they expected shortages of skilled labor to continue shaping the industry for the next five years.
- Fifty-six percent indicated that the nation’s aging population will bolster demand for remodeling for the next five years.
For more information, e-mail Jim Lapides at NAHB, or call him at 800-368-5242 x8451.