the remodeling market - builders' show · source: jchs tabulations of the home improvement...
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JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
www.jchs.harvard.edu
The Remodeling Market
Kermit Baker
Remodeling Futures Program
International Builders Show
January 21, 2010
JOINT CENTER FOR HOUSING STUDIES
Harvard University
www.jchs.harvard.edu
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
www.jchs.harvard.edu
Remodeling Market Issues
1. Where do we stand in the remodeling cycle at present?
2. What households demographic groups and areas of the country look to have the most upside for growth in remodeling spending?
3. Which remodeling segments are doing the best at present, and why?
4. Remodeling market outlook – what’s the evidence of an emerging recovery?
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
Remodeling Spending Market Has Fallen Almost 25% From 2007 High
108 121136
162 172
231
274
207
4140
44
4857
49
52
39
149161
180
210229
280
326
246
$0
$50
$100
$150
$200
$250
$300
$350
1995 1997 1999 2001 2003 2005 2007 2009(e)
Owner-occ. homes Rental units
Billions of dollars
Sources: JCHS tabulations of the 1995-2007 American Housing Surveys (AHS) and the US Department of Commerce Survey of Expenditures for Residential Improvement and Repairs (C-50 reports). 2009 estimate base on JCHS LIRA.
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
Homeowner Improvement Spending Continues to Trend Down, But Downturn is Moderating
Source: U.S. Census Bureau
Four-Quarter Moving Rate of Change for Owner Spending on Home Improvement Projects
-0.1%
-4.0%
-8.8%
-6.1%
-5.4%
3.1%
14.8%
10.6%
6.8%
-11.1%
-14.0%
-16.1%
-13.6%
16.0%
17.6%
-20%
-10%
0%
10%
20%
2006-
1
2 3 4 2007-
1
2 3 4 2008-
1
2 3 4 2009-
1
2 3
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
Remodeling Firms Payrolls Have Been Declining, and May Be Near Bottom for This Cycle
Source: US Bureau of Labor Statistics
Employees at residential remodeling firms; % change from year ago
-2.9%
-4.7%-3.8%
-9.5%-8.5% -9.0%
1.3%
8.9%
7.6%
1.0%
-7.8%
-5.7% -6.1%-6.7%
7.4%
5.8%
-15%
-10%
-5%
0%
5%
10%
15%
2006-
1
2 3 4 2007-
1
2 3 4 2008-
1
2 3 4 2009-
1
2 3 4(e)
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
Remodeling Market Trends: Positives
National economy and industry fundamentals improving;
Opportune time for remodeling - lower project costs and quicker scheduling;
Incentives for energy conservation (e.g. energy tax credits; cash for caulkers) generating more “green” remodeling;
Deferred investment in homes, particularly for distressed properties;
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
Remodeling Market Trends: Challenges
Job market remains weak, high unemployment;
Lower levels of home equity, continued credit restrictions;
Cost recovery falling for most types of home improvement projects;
New EPA lead paint rules;
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
With Booming Stock and Housing Market, Wealth Doubled Between 1995 and 2007
135
222
286
368
369
419
12296
7465
0
100
200
300
400
500
600
1995 1998 2001 2004 2007
Non-housing
Housing
Average household net wealth, 000s of 2007$
Sources: 1995-2007 Survey of Consumer Finances, Federal Reserve Board.
287
360
464
491
554
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
33
93
160
184
216
135
0
50
100
150
200
250
Under 35 35-44 45-54 55-64 65+ All Owners
Age of Head
Average household net housing wealth, 2007, $000s
Source: 2007 Survey of Consumer Finances, Federal Reserve Board.
Older Homeowners Benefited From the Long Run-Up in House Prices
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
49
73
106
309
135
0
50
100
150
200
250
300
350
Lowest Quartile Second Quartile Third Quartile Highest Quartile All owners
Income
Average household net housing wealth, 2007, $000s
Source: 2007 Survey of Consumer Finances, Federal Reserve Board.
Likewise Upper-Income Households Benefited the Most from the Run-Up in House Prices
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
Higher Valued Homes Didn’t Rise as Fast During the Boom, and Haven’t Fallen as Far
100
150
200
250
2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1
Low Tier
Middle Tier
High Tier
Index, January, 2000=100
Notes: House values for tiers: Low - under $289,467; Middle - $289,467-$449,392; High -over $428,000. High value for tiers: Low - Aug. 2006; Middle – Jul. 2006; High – Jul. 2006; Overall – Jul. 2006.Source: S&P/Case-Shiller Home Price Indices.
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
Previously Overheated Markets Have Typically Seen the Steepest Price Declines…
Note: Change in sales measured over past 12 months (2008Q3~2009Q3). Sample includes 50 largest metropolitan areas defined by total housing units.
Sources: NAR Real Estate Outlook; Moody's Economy.com Estimates of Total existing single-family home sales (SAAR)
Of 50 largest metro areas in U.S., top and bottom 10 for house price changes over past year
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
…Which In Turn Often Have Produced the Greatest Increase in Home Sales Recently
Note: Change in sales measured over past 12 months (2008Q3~2009Q3). Sample includes 50 largest metropolitan areas defined by total housing units.
Sources: NAR Real Estate Outlook; Moody's Economy.com Estimates of Total existing single-family home sales (SAAR)
Of 50 largest metro areas in U.S., top and bottom 10 for home sale changes over past year
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
Tracking Recent Home Improvement Trends: NPD/HIRI Monthly Consumer Sentiment Index
National monthly survey of about 13,000 households (9,000 homeowners) on home improvement plans, with data released early the following month;
Number of planned projects, estimated cost, DIY/pro installation, and expected financing information collected;
Over 150 home improvement, maintenance and repair, and lawn and garden categories covered each month in survey;
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
Planning Remodeling Spending by Owners Still Below Year-Ago Levels, but Pace is Moderating
Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; December figure based on November and December data only.Source: JCHS tabulations of the Home Improvement Research Institute’s monthly Consumer Sentiment Tracking Study, Feb. 2008-Dec. 2009.
Three month moving averages compared to year-ago level for planned spending
-11.4% -11.7%
-12.7%
-13.4%-13.9%
-14.5%-14.4%-14.0% -13.9%
-18.8%
-20%
-15%
-10%
-5%
0%
Mar Apr May Jun Jul Aug Sep Oct Nov Dec (e)
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
Three month moving averages compared to year-ago level for spending for planned home improvement projects by income
Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; December figure based on November and December data only.Source: JCHS tabulations of the Home Improvement Research Institute’s monthly Consumer Sentiment Tracking Study, Feb. 2008-Dec. 2009.
Planned Spending Recovering Faster for Upper-Income Owners
-30%
-20%
-10%
0%
10%
20%
30%
Mar Apr May Jun Jul Aug Sep Oct Nov Dec (e)
Under $45K
$100K+
All
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; December figure based on November and December data only.Source: JCHS tabulations of the Home Improvement Research Institute’s monthly Consumer Sentiment Tracking Study, Feb. 2008-Dec. 2009.
…And Also for Less-Leveraged Seniors
Three month moving averages compared to year-ago level for spending for planned home improvement projects by age of respondent
-40%
-20%
0%
20%
40%
60%
80%
100%
Mar Apr May Jun Jul Aug Sep Oct Nov Dec (e)
Under 35
65+
All
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; December figure based on November and December data only.Source: JCHS tabulations of the Home Improvement Research Institute’s monthly Consumer Sentiment Tracking Study, Feb. 2008-Dec. 2009.
Spending on Professionally-Installed Projects Recently Doing Better Than Do-It-Yourself
Three month moving averages compared to year-ago level for spending for planned home improvement projects
-25%
-20%
-15%
-10%
-5%
0%
Mar Apr May Jun Jul Aug Sep Oct Nov Dec (e)
Pro
DIY
Total
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; December figure based on November and December data only.Source: JCHS tabulations of the Home Improvement Research Institute’s monthly Consumer Sentiment Tracking Study, Feb. 2008-Dec. 2009.
With Ongoing Credit Restrictions, Cash Financing of Projects Becoming More Popular
Three month moving averages compared to year-ago level for spending for planned home improvement projects
-25%
-20%
-15%
-10%
-5%
0%
5%
Mar Apr May Jun Jul Aug Sep Oct Nov Dec (e)
Cash & Own Funds
Loans
Gifts & Other
All Projects
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
Though Volatile, Planned Exterior Replacement Projects Losing Momentum
Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; December figure based on November and December data only.Source: JCHS tabulations of the Home Improvement Research Institute’s monthly Consumer Sentiment Tracking Study, Feb. 2008-Dec. 2009.
Three month moving averages compared to year-ago level for spending for planned home improvement projects
-25%
-20%
-15%
-10%
-5%
0%
Mar Apr May Jun Jul Aug Sep Oct Nov Dec
(e)
Additions and remodels
Exterior replacements
All Projects
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
Leading Indicator Points to Cyclical Low in Current Quarter with Gains Through Year
Source: Joint Center for Housing Studies.
Homeowner Improvements
Four-Quarter Moving Totals, Billions of $
Four-Quarter Moving
Rate of Change
$144.9 $145.8 $146.2
$144.2
$139.1
$133.0
$125.7
$121.0$120.1
$118.2 $118.1
$114.5
$109.7
$103.9
$107.7
$110.9
10.6%
6.8%
3.1%-0.1%
-4.0%
-8.8%
-14.0%-16.1%
-3.1%
-8.8%-12.0%
-8.7%-5.4%
-6.1%
-11.1%-13.6%
$100
$105
$110
$115
$120
$125
$130
$135
$140
$145
$150
4 2007-1 2 3 4 2008-1 2 3 4 2009-1 2 3 4 2010-1 2 3
-30%
-20%
-10%
0%
10%
20%
30%
40%
US Census Bureau LIRA
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
Evolving Industry Structure – How Contractors have Fared During Downturn
Number of firms
Optimal size of a contracting firm
Performance by specialization.
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
Contractor Revenue Growth Has Been Very Volatile in Recent Years
7.4%8.4%
4.7%
8.0%8.7%
3.1%
-3.8%
5.1%
10.2%
-5%
0%
5%
10%
15%
2000 2001 2002 2003 2004 2005 2006 2007 2008
Median annual change in remodeling revenue, top 500 remodeling contracting firms
Note: Analysis includes remodelers reporting revenue in any two consecutive years and ranking in the top 400 in at least one of those years.Source: JCHS tabulations of Qualified Remodeler magazine’s Top 500 contractors.
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
Contractor Specialties Exhibit a Lot of Volatility
3.1%2.0%
3.2%
5.0%
2.7%
12.0%
-3.8%
-8.7%
-7.4%
-4.8%
-3.1%
4.6%
-10%
-5%
0%
5%
10%
15%
All Design/
Build
Full-Service K & B Ext.
Replace.
Ins.
Restor.
2007
2008
Median annual rate of change in revenue, top 500 contractors
Note: Analysis uses firms reporting revenue in 2007 and 2008 that were ranked in the top 400 in at least one year.Source: JCHS tabulations of Qualified Remodeler magazine’s Top 500 contractors.
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
15.617.1
54.4 124.5
17.2
5.4
$0
$10
$20
$30
$40
$50
$60
Full-Service Replacement Insurance
Restore.
Full-Service Replacement Insurance
Restore.
$0
$20
$40
$60
$80
$100
$120
$140
Revenue Ave. Job Size
2008 firm revenue (millions $)
Source: Remodeling Magazine, 2009 Remodeling 550.
Among Largest Firms, Replacement Contractors Have Greater Scale; Smaller Projects
2008 avg. project size, (000’s)
Median revenue and project size of top 10 contractors in each category
JOINT CENTER FOR HOUSING STUDIES
Graduate School of Design | Harvard Kennedy School
Harvard University
Copyright 2009
Summing Up: The Remodeling Outlook
Remodeling industry still recovering from housing downturn; economic recession; and significant loss of home equity wealth.
Many previously overbuilt markets have seen significant price declines, which are now seeing a rebound in sales.
Remodeling consumers/sectors recovering fastest: Seniors
Upper-income
Smaller cash projects
Home improvement recovery looks to get underway during current quarter.