residential remodelingresidential remodeling market trends ... · remodeling market overview 1....

Residential RemodelingResidential Remodeling Market Trends and Outlook

Kermit BakerRemodeling Futures Conference

April 3, 2012

© 2 0 1 2 P R E S I D E N T A N D F E L L O W S O F H A R V A R D C O L L E G E

Remodeling Market Overview

1. Home improvement spending totaled an estimated $290 billion last year; weak house prices and low levels of home equitylast year; weak house prices and low levels of home equity financing still drags on market growth.

2 Recent shifts in the housing stock have increased the importance2. Recent shifts in the housing stock have increased the importance of rental units and distressed properties as sectors expected to generate share gains in home improvement spending.

3. Remodeling activity appears to be recovering, and spending is expected to gain momentum in second half of year.


With the BuildFax Rebenchmarking, there is Greater Consensus in the Estimates of the Health of the Home

10%

Improvement Market Percent change in Q4-2011 as compared to Q4-2010

7.1%

2 5%5%

10%

2.5%

0%

-2.5%-4.0%

-6.8%

-5%

-10%Census BuildFax HIRI Han-Wood RRI NAHB RMI

Notes: NAHB number calculated as percent below neutral score of 50.Sources: BuildFax Residential Remodeling Index, Home Improvement Research Institute Consumer Sentiment Tracking Study, U.S. Census Bureau C 30 series Hanley Wood Market Intelligence Residential Remodeling Index and NAHB Remodeling Market Index


Census Bureau C-30 series, Hanley-Wood Market Intelligence Residential Remodeling Index, and NAHB Remodeling Market Index.

Though Still Below Its Peak, Estimated Home Improvement Spending Approached $300 Billion Last YearImprovement Spending Approached $300 Billion Last Year

326350

Improvement and maintenance and repair expenditures (Billions of dollars)

49

52

54 49 49

210229

280 286 280 290

250

300

231274

232 231 2404140

4448

57

149 161180

100

150

200

108 121 136162 172

231

0

50

100

1995 1997 1999 2001 2003 2005 2007 2009 2010 (e) 2011(e)

Owner-Occupied Homes Rental UnitsSources: JCHS tabulations of the 1995-2009 American Housing Surveys (AHS); U.S. Department of Commerce Survey of Expenditures for Residential Improvement and Repairs (C-50); and Estimating National Levels of Home Improvement and Repair


p p p ( ); g p pSpending by Rental Property Owners by Abbe Will, JCHS Research Note N10-2, October 2010.

Factors Influencing Remodeling SpendingFactors Influencing Remodeling Spending - Sales of distressed homes continue to put pressure on house

prices, and weak house prices are limiting homeowner willingness to undertake improvements;

- Much of the growth in the housing stock is on the rental side;g g ;

- Home energy costs are key determinant of energy efficiency investments but energy prices are very dependent on source;investments, but energy prices are very dependent on source;

- Home equity credit financing continues to decline;

- Construction industry continues to attract new entrants, limiting the ability of contractors to increase the scale of their operations;


House Prices Remain Weak, and Haven’t Yet Begun to Recover in Many Markets Across the CountryRecover in Many Markets Across the Country…

210

Single-family house price index (Jan. 2000 = 100)

180

190

200

160

170

180

140

150

130

S C L i HPI J 2012


6

Source: CoreLogic HPI, January 2012.

…Held Back in Large Part By Sales of Distressed PropertiesProperties

210Single Family HPI

Index Value (Jan. 2000 = 100)

180

190

200 Single-Family HPI

Single-Family HPI - Excluding Distressed

160

170

180

140

150

130



7


Although Trends are Improving, the Number of Distressed Properties Remains ElevatedDistressed Properties Remains Elevated

5.0L P t D 90 D

Millions of loans (not seasonally adjusted)

3 0

4.0

Loans Past Due 90 DaysLoans in Foreclosure at End of Quarter

2.0

3.0

0.0

1.0

2000 Q1

2001 Q1

2002 Q1

2003 Q1

2004 Q1

2005 Q1

2006 Q1

2007 Q1

2008 Q1

2009 Q1

2010 Q1

2011 Q1

Source: JCHS tabulations of Mortgage Bankers Association, National Delinquency Survey data.


8

Net Household Growth in Recent Years Has Been Dominated by RentersDominated by Renters

704.0

Change in Households (Millions) Homeownership Rate (Percent)

68

69

2.0

3.0

671.0

65

66

-1.0

0.0

2003-5 2005-7 2007-9 2009-11003 5 005 00 9 009

Homeowners Renters Homeownership Rate

S JCHS t b l ti f U S C B H i V S


9

Source: JCHS tabulations of U.S. Census Bureau, Housing Vacancy Surveys.

U.S. Crude Oil Price Increases are Generating Concerns About Future Home Energy Costsgy

3 00

3.50Dollars per gallon for West Texas Intermediate crude oil

2 00

2.50

3.00

1.50

2.00

0.50

1.00

0.00

S U S E I f ti Ad i i t ti Sh t t E O tl k M h 2012


10

Source: U.S. Energy Information Administration Short-term Energy Outlook, March 2012.

However, Over Same Period, New Supplies Have Caused Natural Gas Prices to Fall

12

3 00

3.50Crude oil (left axis)Natural gas (right axis)

Dollars per gallon, crude oil Dollars per thousand cubic ft., natural gas

8

10

2.50

3.00

4

6

1.50

2.00+14%

-42%

2

4

0.50

1.00

00.00


11

Source: U.S. Energy Information Administration Short-term Energy Outlook, March, 2012

Home Equity Lending Continues to EaseHome equity lines of credit and loans amount outstanding at end of period

1 13 1 1265.11.5

Home equity lines of credit and loans, amount outstanding at end of period

Levels of home equity loans outstanding, trillions of $ Changes in levels, billions of $

1.13 1.12 1.03 0.95 0.93 0.90 0.89 0.87 50

0.5

1.0

-18.0

0

-0.5

0.02007 2008 2009 2010 2011-1 2011-2 2011-3 2011-4

-65.0 -62.2

-50

-1.5

-1.0Total outstanding ($T)

Change over period ($B)

-82.3-90.6

-97.0-84.5

-100-2.0

S F d l R B d Fl f F d A t Q 4 2011 T bl F 218 d L 218


Sources: Federal Reserve Board, Flow of Funds Accounts, Q-4, 2011; Tables F.218 and L.218.

Construction Has Historically Been the Sector with the Hi h t R t f E t i l St t UHighest Rate of Entrepreneurial Start-UpsKauffman Foundation Index of entrepreneurial activity; (% of individuals age 20-64 starting a business that month)

1.4%

1.6%

1.8%Construction

Manufacturing

T t l

0.8%

1.0%

1.2%Total

0 2%

0.4%

0.6%

0.0%

0.2%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Sources: Kauffman Index of entrepreneurial activity 1996-2011; March, 2012.


Though Remodeling Industry Became More Fragmented During Downturn, Number of Large Firms g g , gApparently Increased

Number of residential remodeling general contractor establishments with payrolls

EmploymentSize

2003Number

2003Share

2006Number

2006Share

2009Number

2009 Share

4 or fewer 44,414 80.1% 78,800 80.0% 70,918 83.6%

5-9 6,481 11.7% 12,055 12.2% 8,560 10.1%

10-19 2,887 5.2% 5,094 5.2% 3,462 4.1%

20-99 1 406 2 5% 2 288 2 3% 1 507 1 8%20 99 1,406 2.5% 2,288 2.3% 1,507 1.8%

100-499 113 0.2% 162 0.2% 160 0.2%

500 or more 133 0.2% 81 0.1% 247 0.3%

TOTAL 55,434 98,480 84,854

Source: U.S. Census Bureau, Statistics of U.S. Businesses, County Business Patterns Data.


Recent Changes in theRecent Changes in the Housing Stock


Almost 15% of the Housing Stock (19 million units) Doesn’t Have a Permanent Occupantunits) Doesn’t Have a Permanent Occupant

Held Off Market, 7 3

Seasonal, 4.5

2011 national housing stock, millions

Owner-Occ,

Vac-for Rent/Sale,

7.0

7.3

75.1

Renter-Occ, 38 438.4

Total housing stock = 132.3 million units


Source: 2011 U.S. Census Bureau Housing Vacancy Survey.

During Downturn, Net Additions to Housing Stock Heavily Concentrated Among Rental Units; Units Held Off MarketConcentrated Among Rental Units; Units Held Off Market

2.0Owner Rental

Net additions to the housing stock, annual averages, millions

0 10.11.5

Owner RentalVacant SeasonalHeld off

1.27 1 16

1.47

0.3 0.10.1 0.2

0.1

0.1

0.10.3

1.0

1.16

0.9 1.0

0 1

0.7

0 0

0.5

-0.1

-0.5

0.01990-1995 2000-2005 2006-2011

Boom“Normal” Bust


Source: U.S Census Bureau Housing Vacancy Survey; 2000-2011 figures from revised series.

Rental Market Has Played Key Role in Absorbing Single Family Homes Since Housing BustSingle Family Homes Since Housing Bust

1 41.6

Net conversions from owner to renter occupancy (millions of units)

0 8

1.4

1.01.21.4

0 1

0.6 0.8

0 20.40.60.8

(0.2)

0.1

-0 4-0.20.00.2

Note: All structures also includes attached single-family homes and mobile homes.Source: JCHS tabulations of U.S. Department of Housing and Urban Development, American Housing Surveys, using JCHS-adjusted weights.

-0.41999-2001 2001-03 2003-05 2005-07 2007-09


Source: JCHS tabulations of U.S. Department of Housing and Urban Development, American Housing Surveys, using JCHS adjusted weights.

Improvement Spending onImprovement Spending on Rental Units


The Stock Has Been Getting Older, But in Recent Years Th A A f R t l U it H I d MThe Average Age of Rental Units Has Increased More

Median age of the occupied housing stock in years

35 38

3435

40Rental Units

Owner Units

32

29 31

34

30

23

25 25

201985 1989 1993 1997 2001 2005 2009

Sources: American Housing Survey, 1985-2009.


While Improvement Spending Increased for Owner Units Over the Past Decade, It has Remained Stable for Rental Units

Average annual remodeling spending per unit, $

$3,000

$4,000RentalOwner

$2,000

,

$0

$1,000

$02001 2003 2005 2007 2009 2011

Sources: JCHS tabulations of the U.S. Department of Commerce Survey of Expenditures for Residential Improvement and Repairs (C-50); Value of Private Construction Put in Place (C-30); Housing Vacancies & Homeownership Rates; 2001-2009 American Housing Surveys and Estimating National Levels of Home Improvement and Repair Spending by Rental Property Owners by Abbe Will, JCHS


Surveys and Estimating National Levels of Home Improvement and Repair Spending by Rental Property Owners by Abbe Will, JCHS Research Note N10-2, October 2010.

As a Result, the Rental Share of Home I t S di H B D li iImprovement Spending Has Been Declining

30%

Rental share of total residential remodeling spending

20%

25%

30%

10%

15%

20%

0%

5%

10%

0%2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Sources: JCHS tabulations of the U.S. Department of Commerce Survey of Expenditures for Residential Improvement and Repairs (C-50); Value of Private Construction Put in Place (C-30); Housing Vacancies & Homeownership Rates; 2001-2009 American Housing Surveys and Estimating National Levels of Home Improvement and Repair Spending by Rental Property Owners by Abbe Will, JCHS


Surveys and Estimating National Levels of Home Improvement and Repair Spending by Rental Property Owners by Abbe Will, JCHS Research Note N10-2, October 2010.

Distressed Properties


Distressed Sales Comprise 35% of MarketDistressed Sales Comprise 35% of MarketDistressed Share of Existing Home Sales Market (Through Jan, 2012)


24

Source: National Association of Realtors, Realtors Confidence Index Report, Jan 2012 Edition Based on Data Collected Through February 5, 2012.

At Present, Many Distressed Sales are to I t d Oth Ab t OInvestors and Other Absentee Owners

M t AEst. Number of Single‐F il REO S l t

Share of Single‐Family REO S l t Ab tMetro Area Family REO Sales to

Absentee Owners, 2011REO Sales to Absentee

Owners, 2011

Detroit‐Warren‐Livonia, MI 28,200 75%

Phoenix‐Mesa‐Scottsdale, AZ 18 900 39%Phoenix Mesa Scottsdale, AZ 18,900 39%

Chicago‐Naperville‐Joliet, IL‐IN‐WI 12,000 62%

Las Vegas‐Paradise, NV 10,300 42%

Riverside‐San Bernardino‐Ontario, CA 9,500 31%

Miami‐Fort Lauderdale‐Pompano Beach, FL 7,400 43%

Los Angeles‐Long Beach‐Santa Ana, CA 6,600 30%

Dallas‐Fort Worth‐Arlington, TX 6,300 33%

Houston‐Sugar Land‐Baytown TX 6 200 38%Houston‐Sugar Land‐Baytown, TX 6,200 38%

Sacramento‐‐Arden‐Arcade‐‐Roseville, CA 5,200 36%

Notes: Detached Single-Family homes only. REO sales are defined as the first subsequent arm’s length transaction after the foreclosure. Based on approximately 800,000 detached single-family REO sale closings in 2011.

S P li i ti t f H l W d H i I t lli P D t b


Source: Preliminary estimates from Hanley Wood, Housing Intelligence Pro Database.

Contractors Report Significant Pre-Sale and Post Sale Expenditures on Distressed PropertiesPost-Sale Expenditures on Distressed Properties

A g Amo nt Spent on RepairClient category Avg. Amount Spent on Repair & Improvement Projects

By banks/institutions/sellers to prepare foreclosed homes for sale $5,100

By households/investors/purchasersafter short sale, homeowner default

or bank foreclosure$7,300

Source: The Farnsworth Group JCHS Green Remodeling Survey of Remodeling Contractors February 2012


26

Source: The Farnsworth Group, JCHS Green Remodeling Survey of Remodeling Contractors, February, 2012 .

Fannie Mae Spent Almost $600 Million Preparing Di t d H f l L t YDistressed Home for sale Last YearFannie Mae Foreclosed Property and Repair Spending Statistics

2010 2011

REO Sales 186,000 244,000

Number of Properties Sold w/ Repairs 87,000 90,000

Avg. Repair Spending on Sales w/ Repairs $5,600 $6,200

$487 Million $560 MillionTotal Repair Spending on Sales $487 Million $560 Million

Source: Fannie Mae Repair Spend data, Fannie Mae 2011 Annual Report, and A Report on Fannie Mae’s Mission Activities, April 2011.


Majority of Pre-Sale Spending: Replacement It d R ti R iItems and Routine Repairs

Repair Item Repair Spending (Millions $)

Share of All Repair Spending(Millions $) Repair Spending

Interior Painting $110.3 26%Carpeting $65.1 15%

Carpentry (Interior/Exterior) $49.1 12%Plumbing $32.0 8%

HVAC $28 9 7%HVAC $28.9 7%Roofing/Gutters $20.9 5%

Appliances - Materials $14.1 3%Electrical $13.2 3%

Other Structural $11.1 3%

Source: Fannie Mae Repair Spend data through third quarter of 2011


28

Source: Fannie Mae Repair Spend data through third quarter of 2011.

Total Spending on Distressed Properties Totaled E ti t d $8 5 Billi L t Yan Estimated $8.5 Billion Last Year

No % Sales With Avg Expend Est Total

Distressed Property and Repair Spending Statistics

No. Distressed

Sales

% Sales WithRepairs/

Improvements

Avg. Expend. /Unit

Est. Total Market

Spending

Pre-Sale 1.0 million 37% $6,200 $2.3 billion

Post Sale 1 5 million 57% $7 300 $6 2 billionPost-Sale 1.5 million 57% $7,300 $6.2 billion

Total $8.5 billion

Source: Fannie Mae 2011 Annual Report; 2009 AHS Survey; The Farnsworth Group, JCHS Green Remodeling Survey of Remodeling Contractors, February, 2012 .Note: The share of recent sales with repairs/improvements is based upon responses from owner-occupants who were recent buyers in 2009, and does not adjust for purchasers of REO sale properties who were absentee owners.


29

j p p p

Outlook for HomeOutlook for Home Improvement Spending


Planned Spending on Home Improvements Down Recently But Trend Remains Unusually VolatileRecently, But Trend Remains Unusually VolatileQuarterly averages compared to year-ago level for planned spending

10.4%15%

4.9%7.2%

5.3%

0%

5%

10%

-8.4% 9 2%

-2.3% -3.2% -4.0%-2.5%

-3.8%

-10%

-5%

0%

8.4%

-14.9%

-9.2%

-20%

-15%

Note: Quarterly figures are 3-month averages centered on middle of quarter and normalized per 100,000 responses; Third Quarter 2011 estimate based on July and August data only.Source: JCHS tabulations of the Home Improvement Research Institute’s monthly Consumer Sentiment Tracking Study, Feb. 2008 – Aug.


2011.

Preliminary Estimates of Leading Indicator of Remodeling Activity Point to Healthy Upturn in Second Half of YearActivity Point to Healthy Upturn in Second Half of Year

Homeowner ImprovementsFour-Quarter Moving TotalsBillions of $

Four-Quarter MovingRate of Change

$122.61.0%

0 2%0.8%

3.8%

0 1%

5.9%

5%

10%

$125

$130

$118.3

$115.7

$111.8 $112.0$113.4

$114.5$112.9

$111.6 $110 8

$114.2 $113.8$115.8

$113.0$113.9

6 %

-4.2%

-1.1% -0.4%-2.2%

-0.2% -0.6% -1.1%0.1%

-5%

0%

$115

$120

$110.8 $110.2

-10.5%

-8.0% -7.6% -6.7%

-15%

-10%

$105

$110

-20%$1002009-

1 2 3 4 2010-

12 3 4 2011-

12 3 4 2012-

12 3 4

US Census Bureau LIRA


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