The Outlook for the Home Improvement Industry€¦ · Remodeling Market Issues 1. Broader housing market conditions are creating a drag for home improvement spending. 2. Even with

© 2 0 1 1 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

The Outlook for the Home

Improvement Industry

Kermit BakerJoint Center for Housing Studies

Remodeling Market Report2012 IBS

February 10, 2012


Remodeling Market Issues

1. Broader housing market conditions are creating a drag for home

improvement spending.

2. Even with downturn, remodeling spending approaching $300

billion, and accounts for about 70% of residential spending.

3. Strongest sectors at present are energy efficiency upgrades,

reinvesting in distressed properties, and aging-in-place retrofits.

4. Leading indicator for remodeling points to market volatility

continuing, but stronger growth in the second half of the year.


House Prices Nationally Have Fallen More Than

30% From Their Peak

3

Index: January, 2000=100;

Source: S&P/Case-Shiller Home Price Index: Aggregate index - 20-metro composite;

130

150

170

190

210

2004 2005 2006 2007 2008 2009 2010 2011


Homeowner Mobility Has Been Trending Down,

But Fell Sharply During the Recession

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

1988 1990 1992 1994 1997 1999 2001 2003 2005 2007 2009 2011

Share of owners moving in past year

Source: US Census Bureau, Current Population Survey.


House Prices Beginning to Recover in Key

Northeast and Texas MarketsChange in house price index, year over year, Oct 2010 – Oct 2011

Note: Metros mapped are of the 45 largest for which data is available.

Source: CoreLogic House Price Index, 2011.

National average = -3.9%

10 metros with

largest increase

10 metros with

largest decrease


Metro Areas With Recovering House Prices

Generally Seeing Fewer Homeowners UnderwaterNegative equity share, Q3 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, 2011.

National average = 22.1%

10 metros with

smallest share

10 metros with

largest share


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

36.9%

3.0%

-2.5%-4.0%

-6.8%-10%

0%

10%

20%

30%

40%

BuildFax Census HIRI H-W Mkt Int NAHB - RMI

There are an Unusually Broad Range of Measures

of the Health of the Home Improvement Industry

Notes: BuildFax and Census estimates are based on October and November 2011 responses, NAHB calculated as Q4-2011 % below neutral score of

50.

Sources: BuildFax Remodeling Index, Home Improvement Research Institute Consumer Sentiment Tracking Study, U.S. Census Bureau C-30 series,

Hanley-Wood Market Intelligence’s Residential Remodeling Index, NAHB Remodeling Market Index.


Even with the Downturn, the Remodeling Market

is Nearly $300 Billion

108 121 136162 172

231274

232 231 23041

4044

4857

49

52

54 49 49

149161

180

210229

280

326

286 280 279

0

50

100

150

200

250

300

350

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

Rental Units Owner-Occupied Homes

Billions of dollars

Sources: JCHS tabulations of the 1995-2009 American Housing Surveys (AHS); US Department of Commerce Survey of

Expenditures for Residential Improvement and Repairs (C-50); and Estimating National Levels of Home Improvement and Repair

Spending by Rental Property Owners by Abbe Will, JCHS Research Note N10-2, October 2010.


Remodeling Has Contributed a Growing Share of

Residential Investment Since the Downturn

20

30

40

50

60

70

80

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

(p)

20

11

(e

)

Improvement and repair expenditures as a share of total residential investment (percent)

Notes: Total residential investment expenditures include the value of construction put in place for new single-family homes, multifamily

homes, and improvements and repairs to owner-occupied and rental units.

Sources: JCHS tabulations of the 1995-2009 AHS; US Census Bureau, C-50 and C-30 series; McGraw-Hill Construction, Commercial &

Industrial Alterations; Bureau of Labor Statistics, Consumer Price Index; and the JCHS Leading Indicator of Remodeling Activity.


Homeowner Improvement Spending Evenly Split

Between Discretionary and Replacements

Kitchen projects,

11.6%

Other adds/alts,

15.3%

Interior replac.,

10.4%

Exterior replac.,

20.4%

Property imp.,

14.6%

Disaster repairs,

5.7%

Bath projects,

8.6%

Systems ups.,

13.4%

Spending by homeowners for improvements, 2009

Source: Joint Center tabulations of the 2009 American Housing Survey.

Homeowner improvements = $185.1 Billion


Planned Spending on Home Improvements Has

Been Unusually VolatileMonthly averages compared to year-ago level for planned spending

-13.0%

-7.9%

-8.4%

-10.6%

-10.9%

-14.9%-16.3%

-14.5%

-9.2%

-1.8%

3.1%

4.9%

-0.5%

-3.6%

-2.3%

-1.5%-2.5%

-3.2%

4.2%

6.6%

7.2%

1.7%

-1.5%

-4.0%

-2.5%

1.0%

5.3%

10.2%

13.4%

10.4%

2.8%

-3.8%-2.5%-2.3%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; December 2011

estimate 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. 2011.


-20%

-10%

0%

10%

20%

30%

Kitchen & bath, Outside attachments, Interior, Other room additions & alterationsExterior, Systems & equipmentAll Projects

Monthly averages compared to year-ago level for planned spending on home improvement

projects by project type

Planned Spending on Replacement Projects is

Creating the Unusually High Levels of Volatility

Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; December 2011

estimate 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. 2011.


Leading Indicator of Remodeling Activity Points

to Stronger Conditions in Second Half of the Year

Note: Historical data and LIRA weights are revised annually in July.

Source: Joint Center for Housing Studies of Harvard University.

Homeowner Improvements

Four-Quarter Moving Totals

Billions of $

Four-Quarter Moving

Rate of Change

$120.1

$118.3

$115.7

$111.8 $112.0

$113.4

$114.5

$112.9

$111.6$110.8

$114.2 $113.8

$112.4

$108.1

$110.2

$113.6

-13.6%

-10.5%

-8.0% -7.6%-6.7%

-4.2%

-1.1%

1.0%

-0.4%

-2.2%

-0.2%0.8% 0.8%

-2.5%-3.5%

-0.2%

-20%

-15%

-10%

-5%

0%

5%

10%

$100

$105

$110

$115

$120

$125

4 2009-1 2 3 4 2010-1 2 3 4 2011-1 2 3 4 2012-1 2 3

US Census Bureau LIRA


Challenges and Opportunities Facing the

Remodeling Industry

1. Shifting attitudes toward homeownership and home investments

among younger households.

2. Leveraging key growth niches in the industry: sustainable

remodeling and rehabbing distressed properties.

3. Serving the home improvement needs of an aging population.


Reasons to Own a Home Often Have Nothing to

Do With Financial Aspects

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Encourages more engaged citizenship

Provides a symbol of success*

Can borrow against equity

Provides tax benefits

Can live in community with same values

Can live in a convenient location*

Provides a retirement investment

Can have a nicer home*

Can build up wealth

Provides good financial opportunity*

Renting is bad investment

Have control over living space

Can have more space for family*

Provides a safe place to live

Provides good place to raise children

Share of Survey Respondents

Major ReasonMinor Reason

Source: Fannie Mae, National Housing Survey, pooled data from January 2010 through August 2011 (data on reasons

marked with an asterisk (*) were first collected in June 2010).


Average percent of cost recovered by project type

87%

99%

88%84%

89%

82%

71%66% 66%

63%61% 61%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Window / Door Siding Kitchen Roofing Bathroom Add / Alter / Create Room

Percent of Cost Recovered, 2004-05 Percent of Cost Recovered, 2010-11

Source: JCHS tabulations of Hanley Wood Remodeling magazine’s 2004-05 and 2010-11 Cost vs. Value Reports.

Cost Recovery for Remodeling Projects Has

Dropped Sharply in Recent Years


Share of projects (on a dollar basis) over the past year in which firm installed energy efficient

and environmentally sustainable products, average across all respondents

25.8%25.5%

29.0%28.4% 28.7%

24.9%

22%

23%

24%

25%

26%

27%

28%

29%

30%

2009:Q1 2009:Q3 2010:Q1 2010:Q3 2011:Q1 2011:Q3Note: Prior to 2011, the survey asked “Over the past year, for about what share of your projects (on a dollar basis) was energy efficiency and

environmental sustainability specifically mentioned as a project goal?”

Source: JCHS National Green Remodeling Surveys, 2009-2011.

Under Stimulus Program, Growing Share of

Contractors Were Working on Green Projects


Cost, Uncertain Savings Key Reasons Green

Projects Not Undertaken

Share of firms citing reasons why clients decided not to undertake “green” projects even though

they showed interest, average across all respondents (Multiple responses accepted)

Source: JCHS National Green Remodeling Survey, Q3 2011.

77.2%

49.8%

38.2%

29.6%

18.4%

4.5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Higher cost ofthe product(s)

Uncertainty ofcost savings

Higher costof installation

Concern aboutperformance and

reliability

Higher cost oflifecycle servicing/maintenance of the

product(s)

Other


Fannie Mae Spent Almost $600 Million Fixing Up

Foreclosed Properties Last Year

2010 2011

Foreclosed Homes Sold 185,700 256,400

Number Homes Sold w/ Repairs 87,000 92,400

Avg. Repair Spending on Homes Sold $5,600 $6,100

Total Spending on Homes Sold ($ Millions) $487.2 $559.8

19

Fannie Mae Foreclosed Property and Repair Spending Statistics

Notes: 2011 figures based on 2011 Q1 through Q3 data. Q4 is estimated based on the average values of the previous three quarters.

Source: Fannie Mae Quarterly Report 2011 Q3 and Mission Report 2010; Fannie Mae tabulations of repair spending data.


Household Growth (millions)

0.8

-2.3

3.7

6.9

1.7 1.5

-4

-2

0

2

4

6

8

Under 35 35-44 45-54 55-64 65-74 75+

2000-2010 growth: 12.2 million

Age of head of household

Last Decade, Household Growth Dominated By

Households Traditionally Active in Remodeling

Source: Joint Center tabulations of U.S. Census Bureau, 1999-2011 Current Population Surveys.


Household Growth (millions)

0.8

-2.3

3.7

6.9

1.7 1.50.9 0.7

-2.3

3.7

6.5

2.2

-4

-2

0

2

4

6

8

Under 35 35-44 45-54 55-64 65-74 75+

2000-2010 growth (12.2 million)

2010-2020 projections (11.8 million)

This Coming Decade, Household Growth Shifts to

Active Retirees

Source: Joint Center tabulations of U.S. Census Bureau, 1999-2011 Current Population Surveys, and Joint Center for Housing Studies modification of

U.S. Census Bureau population projections that reduces its baseline immigration assumptions by half.

Documents

The Outlook for the Home Improvement Industry€¦ · Remodeling Market Issues 1. Broader housing market conditions are creating a drag for home improvement spending. 2. Even with