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Remodeling Growth Expected to Moderate in 2007
Growth of remodeling expenditures is expected to moderate this year following a strong performance in 2006, according to the latest forecast for the industry from HousingEconomics.com.
Contrary to historical experience, remodeling in the near term is not expected to move in the same direction as the new homes market, which has been experiencing a downswing in sales and production, the forecast notes, largely as a result of the record rates of new and existing home sales in 2005. Home sales tend to increase remodeling expenditures, which trail out for 12 to 18 months after the sale.
Remodeling expenditures for 2005 came in at $215 billion, somewhat stronger than the $210 billion NAHB economists forecast last March. That volume is expected to increase to $233 billion in 2006, which would be an 8.4% increase over 2005, roughly in line with the 8.3% increase in 2005.
Although expenditures on owner-occupied properties will continue to dominate the residential remodeling market — especially for improvements — expenditures on rental properties are expected to pick up from recent rates, especially for repair and maintenance.
Nominal remodeling expenditures on rental units fell in both 2004 and 2005, largely due to sharp declines in expenditures on maintenance and repairs, which were down 7.9% and 19.9% in those years, respectively. Significant improvements in this category are now expected over the next few years as a result of lower rental vacancy rates and higher rents, which are creating incentives for landlords to address delayed maintenance and repairs as well as to invest in improvements to their properties.
Other factors that bode well for the remodeling industry:
- Repairs from the 2005 hurricane season are continuing.
- The housing stock exceeds 120 million units and will continue to increase at a pace of more than 1 million units per year, on average.
- Despite strong rates of new production in recent years, the median age of the stock is on an upward trend; the median age reached 33 years in 2005, up from 25 years a decade and a half ago.
- The favorable location of many existing housing units, in an era of spreading growth controls and heavy impact fees on new housing, further enhances the incentives to remodel. These incentives are particularly strong in the high-growth areas along the East Coast and West Coast.
- There has been a dramatic rise in homeownership, which now stands at 69%, up from 65% a decade earlier.
NAHB forecasts that the average, annual, compounded rate of increase in nominal remodeling expenditures will be 5.3% from 2005 through 2015.
For information on remodeling resources at NAHB, e-mail Jim Lapides, or call him at 800-368-5242 x8451.
 Get NAHB’s Remodeling Forecast Online
NAHB’s Remodeling Forecast issue provides an in-depth exploration of the forces driving the remodeling industry. The forecast includes historical and forecast tables showing real (inflation-adjusted) and nominal remodeling expenditures, divided into remodeling by owners and renters and by type of remodeling — improvements, maintenance and repairs.
To download a free sample, click here.
To subscribe, click here.
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