k. baker--remodeling market trends and update...remodeling market trends 1. homeowners generally...

Remodeling Market Trends and Update Trends and Update

Kermit Baker

Remodeling Futures Conference Remodeling Futures Conference April 5, 2011

JOINT CENTER FOR HOUSING STUDIESGraduate School of Design | Harvard Kennedy School

Harvard University

Copyright 2011

Remodeling Market Trends

1. Homeowners generally familiar with federal energy-efficiency tax credit program, and many undertook projects because it was available.

2. Distressed properties remain important source of new projects for remodeling contractors.

3. Weather created slowdown in remodeling activity in first quarter, although discretionary projects and pro q , g y p j pprojects remained fairly healthy.

4. LIRA sending mixed signals for 2011 remodeling 4. LIRA sending mixed signals for 2011 remodeling outlook; volatility likely to continue.

5 Home sales picking up in Sunbelt; prices holding up


Harvard University

Copyright 2011

5. Home sales picking up in Sunbelt; prices holding up better in Frostbelt

Homeowners Were Widely Aware of the Expanded Energy-Efficiency Tax Credit Program

Please indicate which of the following best describes your awareness and participation in the federal energy-efficiency tax credit program

Not aware, 18%Aware, and

have done project(s),

25%

Aware, but have not

done projects 57%

Note: Survey of 723 respondents. Federal energy-efficiency tax credit program are for projects such as insulation, high

projects, 57%


Harvard University

Copyright 2011

Note: Survey of 723 respondents. Federal energy efficiency tax credit program are for projects such as insulation, high efficiency windows, and heating and air conditioning upgrades.Source: Synovate survey, 2011.

Still, Without Tax Credit Incentives, Many Indicate That They Still Would Have Undertaken Project

How important was the federal tax credit in your decision to undertake an energy-efficiency home improvement?

Not very

Very important (wouldn't have

done the project without it), 23%

important (probably would

have done project without it), 40%

Somewhat important (helped

Note: Survey of 184 respondents who had answered in a previous question that they were aware of the federal tax credit

important (helped sway decision to

undertake the project), 37%


Harvard University

Copyright 2011

Note: Survey of 184 respondents who had answered in a previous question that they were aware of the federal tax credit program and had done one or more eligible projects.Source: Synovate survey, 2011.

For Remodelers Working on Distressed Properties Over Past Year, Projects Averaged 20% of Revenue

Work on distressed homes as share of project revenue over the past year, % of firms

50% or more10%

under 10%37%

25% to 50%12%

37%

10% to 25%41%

average = 19.6% of total revenue


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Copyright 2011

Note: responses for the 83 respondents (35%) that had worked on distressed properties over the past yearSource: JCHS National Green Remodeling Survey, February, 2011.

The Share of Project Activity on Distressed Homes was Highest in the West

Work on distressed homes as share of project revenue over the past year, averages for firms by region

25%

15 7% 16 0%

21.9% 22.4%

19.6%20%

25%

15.7% 16.0%

10%

15%

5%

0%

Northeast South Midwest West US


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Copyright 2011

Source: JCHS National Green Remodeling Survey, February, 2011.

Purchasers Were the Most Common Client for Remodelers Working on Distressed Properties

Remodeler clients when working on distressed properties (multiple responses permitted)

72%

60%

80%

2 %

40%

24%27%

6%

20%

0%

Purchaser Seller Bank Other

Source: JCHS National Green Remodeling Survey February 2011


Harvard University

Copyright 2011

Source: JCHS National Green Remodeling Survey, February, 2011.

Employment At Residential Remodeling Companies Finally StabilizingCompanies Finally Stabilizing

Number of employees (000s, not seasonally adjusted)

% change from same quarter year ago

309.0314.8

30%

40%

325

350

294.1

309.0305.2

282.9288.9 289.5

275.11.0% 1.3%

2 9% -0 6% 0.5%

10%

20%

275

300

247.4 247.8253.8

243.4

220.2

235.7244.5 241.8

223.1

-2.9%-4.7% -3.8%

-6.5% -8.0% -9.9%-12.5% -14.2%-12.3%

-11.5%-11.0%

-4.9%-3.7%

-0.6%

20%

-10%

0%

225

250

-30%

-20%

200

5

2007-1 3 4 2008-1 2 3 4 2009-1 2 3 4 2010-1 2 3 4 2011-1(e)


Harvard University

Copyright 2011

Source: U.S. Department of Labor.

Remodeling Contractors Failure Rates Were Very High Even When Market Was StrongVery High Even When Market Was Strong

Cumulative change in remodeling contractors in existence in 2003 over following four years

-11.2%

-10%

0%

-18.9%

-26.4%

-32.6%

-20.3%

-30%

-20%

32.6%-36.0%

-46.0%

53 6%

-50%

-40%

-53.6%-60%

2004 2005 2006 2007

Established Firms 2003 Start-ups


Harvard University

Copyright 2011

Source: Statistics of U.S. Businesses, Business Information Tracking Series (BITS).

Tracking Recent Home Improvement Trends: NPD/HIRI Monthly Consumer Sentiment IndexNPD/HIRI Monthly Consumer Sentiment Index

National monthly survey of about 9,000 homeowners on home improvement plans;homeowners on home improvement plans;

Number of planned projects, estimated cost, p p j , ,DIY/pro installation, and expected financing information collected;

Over 150 home improvement, maintenance and repair, and lawn and garden categories covered

h th i each month in survey;


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After Healthy End to 2010, Planned Spending Falls Off in Early 2011Three month moving averages compared to year-ago level for number of owners, number of planned projects, and planned spending

6.6% 7.1%10%

-1.4%

3.3%

5.0%

-0.5%

-3.6%-2.3% -2.6%

-3.3%

4.2%

1.5%

-1.6% -3.7%

0%

5%

-12.6%

-7.6%-8.1%

-10.2%-10.4%-8.9%

3.6%-1.5%

3.7%

-10%

-5%

-14.4%-15.9%

-14.2%

-20%

-15%

Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; February 2011 estimate based on January and February data only.

b l f h h ’ hl k d


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Copyright 2011

Source: JCHS tabulations of the Home Improvement Research Institute’s monthly Consumer Sentiment Tracking Study, Feb. 2008 – Feb. 2011.

Replacement Projects Creating Most of the Volatility in Planned Spending Three month moving averages compared to year-ago level for spending for planned home improvement projects by project type

15%

20%

5%

10%

15%

-10%

-5%

0%

-20%

-15%

Kitchen & bath, outside attachments, interior, other room additions & alterations

Exterior, systems & equipment

All Projects

Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses;


Harvard University

Copyright 2011

Note: Monthly figures are 3 month moving averages centered on reported month and normalized per 100,000 responses; February 2011 estimate based on January and February data only.Source: JCHS tabulations of the Home Improvement Research Institute’s monthly Consumer Sentiment Tracking Study, Feb. 2008 – Feb. 2011.

With Planned Spending Strong for Seniors and for Replacements, Pro Projects Pace Growth jThree month moving averages compared to year-ago level for spending for planned home improvement projects

20%

5%

10%

15%

-10%

-5%

0%

-25%

-20%

-15%

-25%

Pro DIY Total (Pro & DIY)



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Copyright 2011


Planned Spending by Owners in Northeast and Midwest Outpacing Sunbelt Locations

Three month moving averages compared to year-ago level for planned home improvement projects

40%

20%

30%

-10%

0%

10%

-30%

-20%

-10%

Northeast Midwest South West All



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Cash Has Been Funding a Growing Share of the Home Improvement Market

Spending by source of funds category for planned home improvement projects

Gifts & Other

No answer7%

Loans13%

Gifts & Other8%

3%

Cash & Own Funds72%

Note: Monthly figure of spending is normalized per 100,000 responses.


Harvard University

Copyright 2011

Note: Monthly figure of spending is normalized per 100,000 responses.Source: JCHS tabulations of the Home Improvement Research Institute’s monthly Consumer Sentiment Tracking Study, February, 2011.

Leading Indicator of Remodeling Activity Shows Unusual Volatility Through 2011 (preliminary)

Homeowner ImprovementsFour-Quarter Moving TotalsBillions of $

Four-Quarter MovingRate of Change

20%$140

$132.2

$125 7

$130.2

1 8%3.2% 2.8%

7.1%

10.3%

6.3% 10%

20%

$130

$140

$125.7

$120.9 $120.1$118.2

$115.8 $114.6

$118.0$115.9 $115.2

$122.7 $123.3

$115.0

-7.9% -7.1% -6.7%

-3.0%

1.8% -0.2%

-10%

0%

$120

$112.3 $112.0-9.3%

-14.0%-16.1%

-13.6%-10.6%

-20%$110

-30%$1002008-1 2 3 4 2009-1 2 3 4 2010-1 2 3 4 2011-1 2 3 4

US Census Bureau LIRA


Harvard University

Copyright 2011

Source: Joint Center for Housing Studies.

Many Distressed Markets Beginning to See an Increase in Sales of Existing Homes

Change in home sales, year over year, Q4 2009 – Q4 2010

10 metros with largest increase

10 metros with largest decrease

National average = -19.2%


Harvard University

Copyright 2011

Note: Metros mapped are of the 50 largest by population for which data is available.Source: Zillow.com

House Prices Beginning to Recover in Key Northeast, Texas, and California Markets

Change in house price index, year over year, Dec 2009 – Dec 2010

10 metros with largest increaselargest increase

10 metros with largest decrease

National average = -5.5%


Harvard University

Copyright 2011

Note: Metros mapped are of the 45 largest for which data is available.Source: CoreLogic House Price Index, 2010.

Metro Areas With Recovering House Prices Generally Seeing Fewer Homeowners Underwater

Negative equity share, Q4 2010

10 metros with 10 metros with smallest share

10 metros with largest share

National average = 23.8%


Harvard University

Copyright 2011

Note: Metros mapped are of the 50 largest metro areas and divisions that have 50,000 or more loans.Source: CoreLogic Negative Equity Report, 2010.

Remodeling Outlook

1. Year getting off to a rough start; bad weather and expiration of higher-level energy-efficiency tax credit seem to be major culprits seem to be major culprits.

2. Rehabilitating distressed properties looks to be i t t f k t th i b ilt important source of market growth in overbuilt areas.

3. Discretionary project activity picking up across the board, although heavy reliance on cash funding limiting project size.

4. Home sales beginning to pick up in distressed markets, although prices holding up better in Northeast and Texas markets.


Harvard University

Copyright 2011

k. baker--remodeling market trends and update...remodeling market trends 1. homeowners generally...

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