Remodeling Market Update
Kermit Baker
Remodeling Futures Conference
October 27, 2015
Home Improvement & Repair Spending is Still On
Track to Reach Its All-Time High By Year End
National home improvement and repair market size estimates (billions of $)
Notes: Non-AHS years (even number years) are estimated using Census Bureau C-50 and C-30 data. Forecast created using JCHS LIRA estimates. Sources: JCHS tabulations of HUD American Housing Surveys, Census Bureau C-50 and C-30 and JCHS Research Note N10-2.
$301.4 $324.4 $306.5 $290.7 $282.4 $281.0 $288.5 $297.2 $318.0 $326.1
7.6%
-4.5%
-5.2%
-2.9%
-0.5%
2.6%
3.0%
7.0%
2.5%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
$0
$50
$100
$150
$200
$250
$300
$350
$400
2006(e)
2007
2008(e)
2009
2010(e)
2011
2012(e)
2013
2014(e)
2015(f)
Spending
Annual % change
While Most Industry and Consumer Metrics Have Recovered
From Recession, Financial Sector Indicators Have Not
Recent
Past Peak
Recent
Trough
2014
Current
Remodeling Industry
Total remodeling spending ($ billions)
$324.4
$218.0
$317.2
$326.1
Remodeling spending – rental units ($ billions)
$54.5
$49.7
$59.5
$60.0*
Existing home sales (millions)
6.2
3.7
4.3
4.9
National house prices (index: Jan., 2000 =100)
198.7
134.9
171.1
186.1
Remodeling contractor payrolls (thousands)
324.3
220.2
281.9
304.7
Unemployment rate – construction workers (%)
6.9%
22.7%
8.3%
5.5%*
Retail sales – building materials ($ billions)
$299.4
$226.0
$273.9
$287.6
Consumer
Consumer sentiment (index: 1966=100)
98.0
59.7
84.1
92.1
Household income (median, inflation-adjusted)
$57,400
$52,600
$53,700
$54,700
Financial
Prime lending rate
8.25%
3.25%
3.25%
3.25%
Share of home mortgages underwater (%)
8.0%
31.4%
17.6%
14.4%
Cash out mortgage refinancing activity ($ billions)
$320.5
$24.9
$24.9
$35.5
Notes: Historical estimates of share of home mortgages underwater from HUD analysis of AHS; current household income estimated from 2015 ECI growth. Sources: JCHS, NAR, CoreLogic, USDOL, US Census Bureau, Conference Board, FRB, Freddie Mac.
Home improvement financing remains depressed in spite of broader
market recovery;
Sustainability projects continue to be important home improvement
segment, with recycled/reclaimed materials a market served by over a
third of contractors;
Changes in the rental market offer remodeling opportunities for
traditional remodeling businesses;
Larger contractors seeing disproportionate share of
market growth at present;
Contractors optimistic about prospects for 2016.
Home Improvement Industry Trends and Issues
House Prices Continue to Recover Nationally,
Having Gained Back Nearly 80% of Their Losses
130
140
150
160
170
180
190
200
210
-32.1%
+37.9%
Single-family house price index (Jan. 2000=100)
Average Home Equity Levels for Owners Have
Almost Fully Returned to Pre-Downturn Levels
$168.1
$135.9
$93.4
$90.6
$86.7
$85.0
$106.9
$137.0
$151.6
$163.0
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015-2
Note: Average equity per owner based on occupied units only.
Sources: Federal Reserve Board, Flow of Funds, table B. 100; and Housing Vacancy Survey.
Average equity per owner (thousands of $)
As Owners Pay Down Older Lines, Home Equity
Loans Outstanding Continue to Trend Down
1.13
1.12
1.03
0.93
0.85
0.77
0.70
0.67
0.66
0.65
0.0
0.5
1.0
1.5
2007
2008
2009
2010
2011
2012
2013
2014
2015-1
2015-2
Home equity lines of credit and loans, amount outstanding at end of period (trillions of $)
After Falling Dramatically During the Downturn, Cash
Out Refinancing is Beginning to Modestly Increase
$0
$20
$40
$60
$80
$100
8 Source: Federal Home Loan Mortgage Corporation.75%
31%
6%
9%
10%
2%
70%
31%
8%
11%
20%
2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Cash
Credit Card
Bank Loan
Retailer Credit Home Equity
Line of Credit
Other
April, 2012
April, 2015
Although Credit Options are Becoming More
Popular, Industry Still Relies Heavily on Cash
Source: Piper Jaffray 7th Home Improvement Survey, April, 2015.
Method of payment for large ticket project over the next 12 months; respondent asked to
select all that apply
Home Improvement Industry Trends and Issues
Home improvement financing remains depressed in spite of broader
market recovery;
Sustainability projects continue to be important home improvement
segment, with recycled/reclaimed materials a market served by over a
third of contractors;
Changes in the rental market offer remodeling opportunities for
traditional remodeling businesses;
Larger contractors seeing disproportionate share of
market growth at present;
Contractors optimistic about prospects for 2016.
28%
30%
27%
24%
20%
0%
10%
20%
30%
40%
2013-2
2014-1
2014-2
2015-1
2015-2
N=251
N=300
N=352
N=307
N=231
Note: Includes remodelers who did no sustainability projects.
Source: JCHS Survey on Environmental Sustainability Trends in Remodeling, The Farnsworth Group, 2013-2015.
Share of home improvement projects (on a dollar basis) for which firms installed products
in any environmentally sustainable and related remodeling categories (percent):
As Discretionary Activity Begins to Pick Up, Sustainable
Improvements Account for Smaller Share of Firm Revenue
11
23
28
36
53
55
75
0
20
40
60
80
Renewable energy
Home automation
Use of rapidly renewable
products
Use of recycled products or
re-use of existing materials
Healthy home/indoor
environmental quality
Water
efficiency/conservation
Energy efficiency
Recycled/Re-used Products Apparently is a
Significant but Not Dominant Niche for Contractors
Notes: N=231. Respondents were asked to select remodeling projects and/or products that their company has installed in recent years.
Source: JCHS Survey on Environmental Sustainability Trends in Remodeling, The Farnsworth Group, 2015:Q2.
Share of contractors installing environmentally sustainable and related remodeling
project/product (percent)
21
31
31
53
54
54
60
70
0
20
40
60
80
Plumbing/fixtures/products
Cellulose insulation
Carpet with recycled content
Resurfacing (rather than
replacing)
Brick/stone/tile
Dimensional lumber
Wood flooring
Doors/windows/cabinets
Contractors Report that Millwork Categories Most
Commonly Recycled/Reclaimed Products
Notes: N=70. Respondents were asked to select recycling/reclaimed products that their company has installed in recent years.
Source: JCHS Survey on Environmental Sustainability Trends in Remodeling, The Farnsworth Group, 2015:Q2.
Share of contractors installing projects/products of those contractors involved in recycled/
reclaimed content projects (percent)
Clients Motivations Included Style/Design
Preferences, Healthy Home Concerns
Notes: N=70. Question was asked only of remodelers who installed recycled/reclaimed content.
Source: JCHS Survey on Environmental Sustainability Trends in Remodeling, The Farnsworth Group, 2015:Q2.
Share of contractors who indicated the following were very important for clients when deciding whether to
install recycled or reclaimed content (percent)
14
39%
47%
54%
56%
0%
10%
20%
30%
40%
50%
60%
Saving natural resources
Minimizing disruption/
length of projects
Indoor environmental health
37
37
40
59
0
10
20
30
40
50
60
70
Safety concerns/risks
Quality/durability concerns
Low availability
Higher cost
Higher Costs and Availability Top Contractor
Concerns With Recycled/Reclaimed Products
Notes: N=83. Respondents who have installed recycled/reclaimed products in recent years were asked to select disadvantages to using recycled/reclaimed content products in their business practice.
Source: JCHS Survey on Environmental Sustainability Trends in Remodeling, The Farnsworth Group, 2015:Q2.
Buy and
Donate,
44%
Buy,
7%
Donate,
16%
Rarely
Buy/Donate,
17%
Not aware of
any
reclamation
centers,
16%
Most Contractors Engaged in Recycled/Reclaimed
Product Installation Are Utilizing Reclamation Centers
Notes: N=83. Respondents installing recycled/reclaimed content products/projects were asked to identify presence of reclamation center(s) in their market area and their engagement with them.
Source: JCHS Survey on Environmental Sustainability Trends in Remodeling, The Farnsworth Group, 2015:Q2.
Engagement with reclamation centers among contractors engaged in recycled/reclaimed/reused-content projects
(percent; frequency of activity)
Home Improvement Industry Trends and Issues
Home improvement financing remains depressed in spite of broader
market recovery;
Sustainability projects continue to be important home improvement
segment, with recycled/reclaimed materials a market served by over a
third of contractors;
Changes in the rental market offer remodeling opportunities for
traditional remodeling businesses;
Larger contractors seeing disproportionate share of
market growth at present;
96.1
333.7
503.1
432.7
274.2
506.6
903.3
0
200
400
600
800
1,000
1950s
1960s
1970s
1980s
1990s
2000s
2010-14
So Far in the 2010s, Renter Household Growth Has
Outstripped the Pace in Any Previous Decade
Average Annual Change in Renter Households (Thousands)
Source: JCHS tabulations of US Census Bureau, Decennial Censuses and Housing Vacancy Surveys.
Note: Data exclude mobile homes.
Source: JCHS tabulations of U.S. Census Bureau, Decennial Censuses and American Community Surveys.
Single-Family Homes Have Accommodated a
Significant Share of Increased Rental Demand
Average Annual Change in Occupied Rental Units (Thousands)
0
200
400
600
800
1,000
1970s
1980s
1990s
2000–05
2005–10
2010–13
Multifamily
Single-Family
As a Result, Millions of Single-Family Homes
Became Rentals During Housing Downturn
0.4
0.7
1.1
1.7
-0.2
-0.1
0.1
0.2
-0.5
0.0
0.5
1.0
1.5
2.0
2003–05
2005–07
2007–09
2009–11
Single-Family
Multifamily
20 Source: JCHS tabulations of US Department of Housing and Urban Development, American Housing Surveys.Home Improvement Industry Trends and Issues
Home improvement financing remains depressed in spite of broader
market recovery;
Sustainability projects continue to be important home improvement
segment, with recycled/reclaimed materials a market served by over a
third of contractors;
Changes in the rental market offer remodeling opportunities for
traditional remodeling businesses;
Larger contractors seeing disproportionate share of
market growth at present;
Revenue Growth of Larger Contractors This Upturn
Has Consistently Outpaced Overall Market Gains
8.0%
10.2%
8.7%
5.1%
3.1%
-3.9%
-9.3%
5.1%
3.5%
7.5%
10.8%
11.5%
-15%
-10%
-5%
0%
5%
10%
15%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Revenue of larger-scale remodelers
Total improvement & repair spending
Note: Analysis includes remodelers reporting revenue in two consecutive years and ranking in the top 400 in at least one of those years. Sources: JCHS tabulations of Qualified Remodeler magazine’s Top 500 Remodelers and JCHS annual remodeling market size estimates.
22
With Recovering Market, Contractors Serving
Discretionary Market Seeing Stronger Growth
15.6%
10.2%
8.7%
18.6%
8.7%
10.8%
12.5%
7.4%
14.0%
7.8%
8.1%
11.5%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Design/Build
Full-Service
Exterior
Kitchen &
Bath
Insurance
Restor
All
2013
2014
Median annual rate of change in remodeling revenue by business type
Note: Analysis includes remodelers reporting revenue in 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 Remodelers.
Average Project Size Up Significantly Over Past Few
Years, But Still Below Market Peak for Most Specialties
$0
$4
$8
$12
$16
$20
$0
$20
$40
$60
$80
$100
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Design/Build (left)
Full-Service (left)
Exterior Replacement (right)
Median average job size (Thousands of $)
Home Improvement Industry Trends and Issues
Home improvement financing remains depressed in spite of broader
market recovery;
Sustainability projects continue to be important home improvement
segment, with recycled/reclaimed materials a market served by over a
third of contractors;
Changes in the rental market offer remodeling opportunities for
traditional remodeling businesses;
Larger contractors seeing disproportionate share of
market growth at present;
Remodelers Estimate Revenue Growth of Around
10% This Year…
Increase 25% or +
13%
Increase 10%-24%
22%
Increase 5%-9%
19%
About the same
(+/- 5%)
36%
Decline >5%
10%
Projected growth in company revenue in 2015 (percent of firms by projected change)
Notes: N=220. Estimates are weighted average of responses in the categories.
Source: JCHS Survey on Environmental Sustainability Trends in Remodeling, the Farnsworth Group, 2015:Q2.
Average estimated growth = 10%
… With More Modest Optimism About the
Prospects for 2016
Significantly higher
7%
Somewhat higher
39%
About the same
43%
Lower
4%
Don't know/not sure
8%
Projected change in company revenue in 2016 (percent of firms by projected change
)
Notes: N=231. Estimates are weighted average of responses in the categories.
The Leading Indicator of Remodeling Activity Points
to an Accelerating Growth Moving into 2016
Homeowner Improvements
Four-Quarter Moving Totals
Billions of $
Four-Quarter Moving
Rate of Change
$121.9 $126.0 $129.3 $130.8 $132.7 $133.1 $132.1 $138.7 $146.0 $143.4 $140.7 $144.7 $149.4 $148.3 $146.9 $154.5 2.1% 4.2% 7.2% 8.0% 8.9% 5.6% 2.2% 6.1% 10.0% 7.7% 6.5% 4.3% 2.4% 3.4% 4.4% 6.8%-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
$100
$110
$120
$130
$140
$150
$160
$170
$180
$190
$200
3
4
2013-1
2
3
4
2014-1
2
(e)
3
(e)
4
(e)
2015-1
(e)
2
(e)
3
(e)
4
(p)
2016-1
(p)
2
(p)
US Census Bureau
LIRA
Notes: (e) – estimated; (p) – projected. Historical data from the second quarter 2014 onward is estimated using the LIRA. Source: Joint Center for Housing Studies of Harvard University.
Even With Recent Growth, Current Spending
Levels Below Long-Term Market Trend
National home improvement and repair market size estimates (billions of $)
$149 $157
$161 $163
$180
$199
$214 $220
$228
$254
$280
$301
$324
$307
$291 $282 $281 $289
$297
$318 $326
$0
$50
$100
$150
$200
$250
$300
$350
$400
Notes: Non-AHS years (even number years) are estimated using Census Bureau C-50 and C-30 data. Forecast created using JCHS LIRA estimates. Sources: JCHS tabulations of HUD American Housing Surveys, Census Bureau C-50 and C-30 and JCHS Research Note N10-2.
