The Remodeling MarketInternational Builders Show January 14, 2011

• Paul Emrath

• VP-Survey and Housing Policy Research

Outline

• A few additional facts about the industry

• NAHB Remodeling Market Index (RMI)

• NAHB forecasts

• Remodeling in Owner-Occupied Housing: New estimates in geographic detail

Construction Establishments by Annual Receipts

22.9%

46.5%

15.0%

13.7%

1.8%

Under 100K 100-499K 500-999K 1.0-5.0 Million 5 Million Plus

Home Builders

Land Subdivision

Trade Contractors

Residential Remodelers

Source: 2007 Economic Census, U.S. Census Bureau

U.S. Small Business Administration (SBA)Small Business Size Standards

Industry Millions

Home Builders $33.5

Residential Remodelers $33.5

Land Subdivision $7.0

Trade Contractors $14.0

SBA classifies construction businesses as small if

average annual receipts are below the following

thresholds:

Employment in the Construction Industry

Industry Total # Employees

Home Builders 540,327

Residential Remodelers 283,101

Land Subdivision 56,593

Trade Contractors * 4,731,093

* Trade Contractors includes both residential and non-residential

Source: 2007 Economic Census, U.S. Census Bureau.

However, this understates the employment impact of

remodeling for at least two reasons….

1. Share of Remodeling Work Subcontracted

Source: Remodelers Market Index Special Questions, 4th Qtr. 2009, NAHB EcHp.

34%

20%

27%

12%

3%

4%

75% or more

50% to 74%

25% to 49%

10% to 24%

1% to 9%

Zero

Average: 53%

Median: 50%

Number of Trade Contractors Used by

Remodelers Annually

Source: Remodelers Market Index Special Questions, 4th Qtr. 2009, NAHB EcHp.

7%

27%

31%

34%

2%

50 or more

25 to 49

10 to 24

1 to 9

Zero

Average: 18

Median: 12

2. Firms Without Employees

Number of

Firms

Average Sales /

Receipts

Residential construction (incl. remodelers) 592,988 85,900

Specialty trade contractors (all) 1,921,660 50,300

Foundation, structure and building exterior 310,743 56,400

Electrical & other wiring installation 133,524 51,700

Plumbing, heating, air-conditioning 137,990 58,900

Building finishing (drywall, painting, flooring, etc) 752,583 44,600

Source: 2007 Non-Employer Statistics, U.S. Census Bureau.

Economic census: only establishments with a payroll

But there are also many (mostly small) non-employers

Non-Employers in the Construction Industry

In Summary:

• Remodeling businesses mostly small

• Use subcontractors (including non-employers who tend to be even smaller)

• Nature of industry not fully understood by policymakers

• Implications:

– Conventional employment counts understate impact of

remodeling

– Difficulty of communicating with firms

– Limited resources to cope with new regulation (e.g.,

Lead RRP rule)

NAHB Remodeling Market Index (RMI)

• Quarterly survey of professional remodelers

• 400+ responses per quarter

• Questions on whether conditions have improved or gotten worse since previous quarter

• Overall RMI + two major sub-indices:

– Current conditions (major additions & alterations, minor

additions & alterations, maintenance & repair)

– Indicators of future activity (appointments for proposals,

calls for bids, commitments for work, backlog)

• Also “special” questions, e.g. on customers obtaining bids

NAHB Remodeling Market Index (Seasonally Adjusted):

0

10

20

30

40

50

60

1st Qtr. 2001

1st Qtr. 2002

1st Qtr. 2003

1st Qtr. 2004

1st Qtr. 2005

1st Qtr. 2006

1st Qtr. 2007

1st Qtr. 2008

1st Qtr. 2009

1st Qtr. 2010

Ind

ex

better/worse line

Source: NAHB Economics and Housing Policy Group: Remodeling Market Index Survey

RMI: Current Market Conditions (Seasonally Adjusted):

0

10

20

30

40

50

60

1st Qtr. 2001

1st Qtr. 2002

1st Qtr. 2003

1st Qtr. 2004

1st Qtr. 2005

1st Qtr. 2006

1st Qtr. 2007

1st Qtr. 2008

1st Qtr. 2009

1st Qtr. 2010

Ind

ex

better/worse line

Source: NAHB Economics and Housing Policy Group: Remodeling Market Index Survey

RMI: Future Indicators (Seasonally Adjusted):

0

10

20

30

40

50

60

1st Qtr. 2001

1st Qtr. 2002

1st Qtr. 2003

1st Qtr. 2004

1st Qtr. 2005

1st Qtr. 2006

1st Qtr. 2007

1st Qtr. 2008

1st Qtr. 2009

1st Qtr. 2010

Ind

ex

better/worse line

Source: NAHB Economics and Housing Policy Group: Remodeling Market Index Survey

NAHB Remodeling Market Index (Seasonally Adjusted)

2009 2010

Q4 Q1 Q2 Q3 Q4(P)

OVERALL RMI 41.3 43.8 40.7 40.8 42.3

CURRENT MARKET CONDITIONS 43.0 44.5 42.6 43.4 43.4

Major Additions And Alterations ($25,000 or more) 46.2 48.0 44.2 45.8 49.2

Minor Additions And Alterations (< $25,000) 47.6 47.3 45.8 46.4 45.1

Maintenance and Repair 33.6 37.3 36.6 37.1 35.3

INDICATORS OF FUTURE ACTIVITY 39.6 43.1 38.9 38.1 41.1

Calls for Bids 45.6 49.4 46.2 42.9 48.3

Amount of Work Committed for next 3 months 25.8 29.9 27.9 30.3 27.7

Backlog of Remodeling Jobs 42.1 44.8 37.7 37.2 43.7

Appointments for Proposals 44.9 48.1 43.7 41.9 44.9

Source: NAHB Economics and Housing Policy Group: Remodeling Market Index Survey.

P = Preliminary Numbers

How Often Potential Customers Obtain

Multiple Bids

Source: Remodelers Market Index Special Questions, 1st Qtr. 2010, NAHB EcHp.

1%

4%

20%

38%

38%

Not sure/Don’t know

Never or almost never

Occasionally

Frequently

Always or almost always

Multiple Bids Now vs. Two Years Ago

Source: Remodelers Market Index Special Questions, 1st Qtr. 2010, NAHB EcHp.

5%

19%

2%

75%

Not sure / Don’t know

No change

Fewer customers are obtaining multiple bids now

More customers are obtaining multiple bids now

Remodelers Charging Fees for Submitting an Estimate

Source: Remodelers Market Index Special Questions, 1st Qtr. 2010, NAHB EcHp.

NA1%

No80%

Yes19%

NA2%

No70%

Yes29%

Two Years Ago Now

Common Jobs Done by NAHB Remodelers

Source: Remodelers Market Index Special Questions, NAHB EcHp.

77%73%

76%

52%

70%

57%

46%

29%

48%44% 43%

21%17%

20%

28%33%

2004 2006 2009 2010

Kitchen remodeling Room additions

Whole house remodeling Handyman services

NAHB Forecasts

• GDP (Gross Domestic Product)

– consumption, investment, govt, net exports

– about $14.5 trillion

• RFI (Residential Fixed Investment)

– includes new construction and remodeling

– normally about 5% of GDP (now, about 2.5%)

• Improvements to Owner-Occupied Housing

– only remodeling input into RFI estimate

– nearly equal to $ of new res. construction

– excludes maintenance and repairs

– excludes improvements to rental properties

Real GDP Growth

-10%

-5%

0%

5%

10%

15%

20%

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Q/Q Percent Change, SAAR

Source: Bureau of Economic Analysis, NAHB Economic and Housing Forecast.

0

100

200

300

400

500

600

700

800

900

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Billions 2005 $, SAAR

Residential Fixed Investment

Source: Bureau of Economic Analysis, NAHB Economic and Housing Forecast.

Residential Remodeling:

Owner-Occupied Improvements

-

20

40

60

80

100

120

140

160

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Billions 2005 $, SAAR

Source: U.S. Census Bureau, NAHB Economic and Housing Forecast.

Share of Remodeling Jobs Done for Households

Using Energy Efficiency Tax Credits (25C or 25D)

Source: Remodelers Market Index Special Questions, 3rd Qtr. 2009, NAHB EcHp.

2%

3%

10%

45%

40%

75% or more

50% to 74%

25% to 49%

1 % to 24%

0%

Median 5%

Energy Efficiency Tax Credits

• 25D: Wind, Solar, Geothermal and Fuel Cell Tax Credit

– 30 percent of the cost, through 2016

• 25C: Existing Home Retrofit Tax Credit

– Was set to expire on Dec 30

– Extended through 2011 in Tax Relief, Unemployment Insurance

Reauthorization, and Job Creation Act of 2010

(signed by the President on Dec 17)

– But reduced, from 30 percent of the cost capped at $1,500 to

10 percent of the cost capped at $500

– Reduction was opposed by NAHB

– Lobbying for Energy Efficiency Tax Credits hampered by some

environmental advocates supporting difficult-to-implement

HOMESTAR proposal instead of tax credits

• Statistical model based on “zone”-level data (areas w population~100K) from the American Housing Survey

– HUD & the Census Bureau, available for select metros

• Finds remodeling spending by home owners sensitive to

– Number of home owners

– Share that are married couples

– Average value of the homes

– Share built before1980

• Results can be applied to areas where data for the these items are available

Remodeling in Owner-Occupied Housing:

Estimating Spending in Small Geographic Areas

Remodeling in Owner-Occupied Housing:

Applying the Model to Small Geographic Areas

• Comprehensive data source with greatest geographic detail: American Community Survey (ACS, U.S. Census Bureau) 5-year estimates.

• First set of ACS 5-year estimates (based on data collected 2005-2009) released just before Xmas.

• Used to estimate homeowners’ spending on remodeling in a typical year by county.

Homeowners’ Spending on

Remodeling in a Typical Year:County Estimates

County Total

($Million)Per Home

Average for All Counties 23,965 62.0% 163,932 60.3% 72 2,085

Median for All Counties 7,247 62.5% 134,954 60.4% 14 1,817

Autauga County, Alabama 14,182 62.9% 156,243 36.0% 26 1,857

Baldwin County, Alabama 53,056 65.3% 236,329 31.3% 133 2,498

Barbour County, Alabama 7,079 57.5% 122,725 48.8% 12 1,762

Bibb County, Alabama 5,915 62.2% 105,883 50.4% 9 1,496

Blount County, Alabama 15,929 65.2% 134,669 40.4% 26 1,625

Bullock County, Alabama 2,762 41.4% 147,025 58.8% 7 2,459

Butler County, Alabama 5,584 53.1% 98,076 56.9% 9 1,699

Calhoun County, Alabama 33,649 56.5% 123,534 55.0% 62 1,832

# Owner-

Occupied

Homes

Married

Couple

Share

Average

Value of

Homes

Share Built

Before

1980

Typical-Year Remodeling

Homeowners’ Spending on

Remodeling in a Typical Year:Counties With the Most Homeowners

County Total

($Million)Per Home

Average for All Counties 23,965 62.0% 163,932 60.3% 72 2,085

Median for All Counties 7,247 62.5% 134,954 60.4% 14 1,817

Los Angeles County, CA 1,544,182 59.8% 584,147 78.3% 9,375 6,071

Cook County, Illinois 1,179,389 55.3% 329,479 79.6% 4,568 3,873

Maricopa County, Arizona 900,296 59.7% 313,045 35.6% 3,031 3,367

Harris County, Texas 781,746 62.8% 179,881 51.1% 1,687 2,158

Orange County, California 598,752 64.1% 656,407 64.6% 3,917 6,541

San Diego County, California 596,414 61.6% 566,628 56.6% 3,425 5,742

Miami-Dade County, Florida 482,841 55.2% 345,837 60.0% 1,891 3,917

Wayne County, Michigan 480,177 50.5% 154,385 85.5% 1,171 2,438

# Owner-

Occupied

Homes

Married

Couple

Share

Average

Value of

Homes

Share Built

Before

1980

Typical-Year Remodeling

Homeowners’ Spending on

Remodeling in a Typical Year:Counties With the Highest Home Values

County Total

($Million)Per Home

Average for All Counties 23,965 62.0% 163,932 60.3% 72 2,085

Median for All Counties 7,247 62.5% 134,954 60.4% 14 1,817

Nantucket County, MA 2,566 61.0% 971,751 41.8% 24 9,369

Marin County, California 65,084 59.9% 879,029 78.2% 570 8,755

New York County, New York 177,072 42.4% 819,260 87.5% 1,543 8,716

San Francisco County, CA 123,010 50.1% 812,219 85.8% 1,039 8,443

San Mateo County, CA 156,000 63.7% 810,680 81.9% 1,256 8,053

Teton County, Wyoming 4,540 61.1% 750,602 37.4% 33 7,327

Pitkin County, Colorado 4,284 56.3% 748,981 52.1% 32 7,517

Dukes County, MA 4,481 56.1% 739,197 50.3% 33 7,425

# Owner-

Occupied

Homes

Married

Couple

Share

Average

Value of

Homes

Share Built

Before

1980

Typical-Year Remodeling

Homeowners’ Spending on

Remodeling in a Typical Year:Counties With the Oldest Housing Stock

County Total

($Million)Per Home

Average for All Counties 23,965 62.0% 163,932 60.3% 72 2,085

Median for All Counties 7,247 62.5% 134,954 60.4% 14 1,817

Terrell County, Texas 261 44.4% 109,215 96.9% 1 2,247

Sherman County, Nebraska 1,183 63.0% 91,927 94.7% 2 1,595

St. Louis city, Missouri 70,814 38.1% 151,812 94.5% 197 2,787

Philadelphia County, PA 321,629 39.2% 169,324 93.9% 937 2,913

Dawson County, Texas 3,454 65.8% 59,313 93.7% 4 1,220

Foard County, Texas 386 60.9% 66,373 93.5% 1 1,410

Queens County, New York 361,944 56.4% 488,346 93.2% 1,944 5,370

Hardeman County, Texas 1,257 66.8% 58,783 92.8% 1 1,182

# Owner-

Occupied

Homes

Married

Couple

Share

Average

Value of

Homes

Share Built

Before

1980

Typical-Year Remodeling

Homeowners’ Spending on

Remodeling in a Typical Year:Counties with Highest Estimated Total Spending

County Total

($Million)Per Home

Average for All Counties 23,965 62.0% 163,932 60.3% 72 2,085

Median for All Counties 7,247 62.5% 134,954 60.4% 14 1,817

Los Angeles County, CA 1,544,182 59.8% 584,147 78.3% 9,375 6,071

Cook County, Illinois 1,179,389 55.3% 329,479 79.6% 4,568 3,873

Orange County, California 598,752 64.1% 656,407 64.6% 3,917 6,541

San Diego County, California 596,414 61.6% 566,628 56.6% 3,425 5,742

Maricopa County, Arizona 900,296 59.7% 313,045 35.6% 3,031 3,367

Santa Clara County, California 350,525 65.6% 738,553 71.1% 2,554 7,288

King County, Washington 467,037 60.4% 470,220 59.8% 2,295 4,914

Nassau County, New York 362,098 68.6% 563,692 92.1% 2,076 5,733

# Owner-

Occupied

Homes

Married

Couple

Share

Average

Value of

Homes

Share Built

Before

1980

Typical-Year Remodeling

Homeowners’ Spending on

Remodeling in a Typical Year:Counties with Highest Estimated Spending per Home

County Total

($Million)Per Home

Average for All Counties 23,965 62.0% 163,932 60.3% 72 2,085

Median for All Counties 7,247 62.5% 134,954 60.4% 14 1,817

Nantucket County, MA 2,566 61.0% 971,751 41.8% 24 9,369

Marin County, California 65,084 59.9% 879,029 78.2% 570 8,755

New York County, New York 177,072 42.4% 819,260 87.5% 1,543 8,716

San Francisco County, CA 123,010 50.1% 812,219 85.8% 1,039 8,443

San Mateo County, California 156,000 63.7% 810,680 81.9% 1,256 8,053

Pitkin County, Colorado 4,284 56.3% 748,981 52.1% 32 7,517

Dukes County, MA 4,481 56.1% 739,197 50.3% 33 7,425

Teton County, Wyoming 4,540 61.1% 750,602 37.4% 33 7,327

# Owner-

Occupied

Homes

Married

Couple

Share

Average

Value of

Homes

Share Built

Before

1980

Typical-Year Remodeling

Homeowners’ Spending on

Remodeling in a Typical Year

For more on estimates by county contact

Therese Crahan

Executive Director, NAHB Remodelors

1-800-368-5242 x8211

TCrahan@nahb.org

This presentation is available on the internet:

www.buildersshow.com/education

Contact

Paul Emrath

VP-Survey and Housing Policy Research

NAHB Economics and Housing Policy Group

1-800-368-5242 x8449

pemrath@nahb.org

Thank You