Tag: economy

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What Awaits the Remodeling Market Into 2023?

The current state of the new-home economy tends to lean toward the bleak, with falling housing starts and declining builder confidence. But the remodeling market may be feeling the challenges a bit less. Though spending slowdowns are happening or anticipated, various indicators point to homeowners investing in their current houses and continuing with project lists begun during the pandemic.

The Joint Center for Housing Studies of Harvard University (JCHS) is predicting a steady downturn in home improvement spending throughout the next year, Pro Remodeler reports, with year-over-year spending expected to grow just 6.5% in Q4 2023 versus an anticipated 16.1% growth in Q4 2022. Factors driving these expectations include a drop from unsustainable growth during the pandemic, higher interest rates, and higher prices for materials and labor.

Despite these contractions, reports from the field paint a picture of continued, if more measured, investment in the remodeling market, both DIY and professional.    

The U.S. Remodeler Index by John Burns Real Estate Consulting dropped from 65.7 in Q2 2022 to 62 in Q3, but remains above the index’s growth indicator line of 50. Among the report’s key takeaways, Qualified Remodeler said, is a 4.9-month average backlog among remodelers, with 56% of survey respondents having at least four months of in-progress or planned projects. Supply chain issues are improving, remodelers said, but most also said that customers are downgrading to stay on budget amid pricing concerns.

Lowe’s also conducted a survey of home improvement professionals. The Pro Pulse Survey found that pros remain optimistic despite challenges, and 73% of respondents expect to have more work next year than this year.

Homeowners Invest in Existing Houses

In a recent study of 4,000 homeowners by Houzz, only 1% of homeowners have canceled remodeling projects so far in 2022 and 23% plan to start a project in the next 12 months. “For many, conditions like limited choices of available homes and rising interest rates are driving them toward renovations and improving their current home, since the cost of moving into a house that fits their current needs has become so expensive,” said Marine Sargsyan, Houzz staff economist. “Moreover, more than half of the homeowners we surveyed have no intention of selling or moving out of their current residences in the next 20 years — or ever.”

Exterior updates and “bringing the outdoors in” were among the projects taking priority.

The Houzz study also found that 91% of homeowners planning remodels plan to hire a professional. Though the report didn’t indicate, this could be due to some DIYers reaching the end of their pandemic to-do list of items they can perform themselves.

With some positive indicators, it’s perhaps no surprise that both Lowe’s and The Home Depot are “faring better than expected,” according to CNBC. “Home Depot financial chief Richard McPhail pointed to an ‘improve in place’ mentality among current homeowners, who might have wanted to sell but changed their minds because they could no longer command top dollar,” the website reported.

That’s reflected in the NAHB’s recent forecasts, as well. “The growth rate for improvement spending will slow due to declines for existing home sales,” Robert Dietz, NAHB’s chief economist, told CNBC. “However, an aging housing stock, work-from-home trends, and a decline for household mobility all favor remodeling spending.”

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Housing Continues Steady Climb in 2018 Amid Labor, Material Pricing Challenges

For the housing market, 2018 began with many of the same storylines seen in 2017: a continued steady, if incremental, climb, but with challenges looming in the background that continue to hold some builders and buyers back. Most notably: tight inventory, tight labor, and high material costs.

The year kicked off strong with January housing starts at a seasonally adjusted rate of 1,326,000, which was 9.7% above December’s revised rates and 7.4% higher than January 2017. Building permits also saw dramatic growth, up 7.4% from December and 7.4% from last January to reach a 10.5-year high.

But starts in February, announced March 16, fell 7% to an annual rate of 1,236,000, 4% below last February. Permits also fell 5.7% from January but remained 6.5% above the same time last year.

February 2018 Housing Starts Census Bureau

Multifamily declines were to blame: production fell 26.1% while single-family starts grew 2.9%.

“The decline was concentrated in the volatile category of multi-dwelling units—apartment buildings, condo complexes, and the like. It’s a volatile category and there’s also some evidence that the market for rentals is becoming saturated,” said MarketWatch in its analysis of the data that also described the lull as likely temporary. “Construction on single-family homes, the bread and butter of the housing market, actually rose in February. These homes account for 70% of all new residential construction.”

The decline in multifamily is of little surprise, as that market carried much of the inventory burden immediately after the recession and experienced sky-high numbers for several years until a peak in 2015. The combination of oversaturation and Millennials shifting from renting to owning is driving a slowdown in demand for those housing types. Robert Dietz, chief economist for the NAHB, said the association saw a higher than expected decline in multifamily starts in 2017 and is anticipating another decrease in 2018.

The strength of single-family may be a welcome sign, as one of the biggest challenges in the market is simply a lack of inventory, particularly for entry-level detached homes.

“Demand for housing has continued to outstrip the number of properties available for sale, pushing prices higher and frustrating many would-be buyers,” MarketWatch said in its analysis of January housing starts. “Builders have responded in part by steadily increasing construction of single-family homes, a sign they have confidence in the economy. Stand-alone homes are almost always sold, rather than rented.”

As Builder magazine reports, Millennials are the largest buying group (accounting for more than a third of home purchases) but are still being held back by low inventory and high housing costs. “Even though sales to Millennials reached an all-time survey high, stubbornly low inventory conditions pushed home prices out of reach for many,” the magazine said in its analysis of a National Association of Realtors (NAR) study. “As a result, the overall share of Millennial buyers remains at an underperforming level.”

The NAR study also found that Millennials are turning to the suburbs, not urban condos, for affordable options large enough for their growing families. “Led by Gen X (86%) and Millennial buyers (85%), a detached single-family home continues to be the primary type of property purchased, and older and younger [Baby] Boomers were the most likely to buy a multifamily home,” the article states. “Only 2% of Millennial buyers over the past year bought a condo.”

Along with inventory challenges, home prices also still continue to outpace wages, Dietz notes, but the gap is improving. The recent tax cuts could provide a further boost.

Builder confidence in March was down for the third month in a row, to 70 from 71 in February, but is still in strong territory and is just one point off of March 2017 figures. “Builders’ optimism continues to be fueled by growing consumer demand for housing and confidence in the market,” NAHB Chairman Randy Noel said in a statement. “However, builders are reporting challenges in finding buildable lots, which could limit their ability to meet this demand.”

Indeed, in an NAHB/Wells Fargo survey in December, cost and availability of labor was the No. 1 problem builders reported, followed by building material prices and lot availability.

Dietz says material prices have jumped up to one of the top two concerns in recent months.

In February alone, softwood lumber rose 5.8%, which was the material’s highest jump since 2012 even after a year marked with increases in the category, according to Eye on Housing.  Gypsum was up 4.2%, OSB climbed 3.1%, and ready-mix concrete was up 0.4%. The NAHB also has expressed concerns about the impact of steel tariffs on construction costs, particularly in the wake of the softwood lumber tariffs.

The challenges of inventory that have kept the housing market at a slower pace could prove beneficial should the larger economic picture show signs of decline. “The amount of pent-up demand is sizable due to years of underbuilding,” Dietz notes. “We don’t have a recession in our forecast in the next couple of years. I think the industry is set for some growth. Short-term [factors are] based on cost and interest rates. The long-run [factors are] demographics, and those are in our favor for building more single-family homes.”

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Reports: Siding Market Growing 3.1%; Outdoor Living and Low Maintenance Remain Strong

Versetta Stone outdoor grill

The siding market is expected to grow 3.1% a year through 2021 to reach 101.5 million squares, according to the latest Freedonia Group report and ProSales magazine.

Freedonia Group Siding Market 2016-2021
Source: The Freedonia Group

Key drivers of the growth over the next several years, the research firm reports, will be increasing new-home completions, particularly in the South and West, growth in residential re-siding activity, and an increase in light commercial projects such as retail, offices, and restaurants.

The Freedonia Group cited Boral as one of the industry’s leading players, alongside CertainTeed, James Hardie, LP, and Ply Gem.

Outdoor Living Remains Strong
In AIA’s latest Home Design Trends survey, architects indicated that demand for outdoor living is not only popular, but surging. Outdoor living was the most desired feature in the study, with 70% of architects reporting its popularity increasing minus those reporting it as decreasing. This figure was up from 58% in 2016.

By contrast, the next most popular special room was the mudroom, at 36% and declining.

Versetta Stone grill outdoor kitchen
Versetta Stone mortarless stone veneer adds a beautiful accent to this outdoor kitchen.

Elsewhere in the survey, low maintenance products continue to be an in-demand product feature, with 63% of architects reporting an increase minus those reporting a decrease, compared to 59% the previous year. The only feature more popular was smart thermostats, at 64%. Synthetic materials were third most popular, rising from 48% to 52%.

Reflecting today’s trends, other special features in higher demand were multi-generational accessibility, first-floor master bedrooms, and wider doorways and hallways.

See the full results here.

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Manufactured Stone, Siding Replacement Deliver High Returns for Remodels

For remodelers and homeowners looking to maximize return on investment, manufactured stone veneer is a safe bet, according to the Remodeling 2018 Cost vs. Value report. In the annual study, materials such as Boral Versetta Stone® offered 97.1% payback on investment at the national level, second only to garage doors. Exterior facelifts overall also proved high in value.

Published in January, the Cost vs. Value report is an annual survey from Remodeling magazine that offers insights into which remodeling projects deliver the highest perceived return in resale value.

The measurement for manufactured stone veneer is based on replacing a 300-square-foot continuous band of vinyl siding from the bottom third of the front of the home and replacing it with manufactured stone veneer, sills, corners, and an address block. This year’s 97.1% perceived ROI is an increase over 2017’s report, where the material offered an 89% return.

On a regional level, manufactured stone veneer offered the highest returns, of 125.5%, in the Pacific region (Washington, Oregon, California, Alaska, and Hawaii).

Versetta Stone, Manufactured Stone Veneer, Mortarless Stone Veneer, Ledgestone
Versetta Stone mortarless stone veneer in the Ledgestone texture and Plum Creek color.

Overall, exterior projects are paying off, as well. “Except for the minor kitchen remodel, work done on the exterior of the house generated higher returns than did interior renovations,” the magazine stated.

Indeed, exterior projects made up seven of the 10 projects with the highest returns. Among those was siding replacement, which took the fifth spot with a national average of 76.7% cost recoup, up just a hair from 2017’s report.

Regionally, the Pacific again posted higher returns in the siding category, at 86.6%. ROI was also above average in the South Atlantic (82.2%) and New England (80.2%) regions.

Other highlights from the report:

  • Compared to previous years, upscale and large projects declined in value. “Growing concerns nationwide about affordability could be leading real estate pros to question moves that would make a house even more expensive at resale than it is now,” the magazine speculated.
  • Overall, average payback of the 20 common projects in 100 major markets declined, from 57.9% to 56.8%. Remodeling magazine attributes this to rising costs across all 20 projects versus values increasing in just two-thirds of the projects. The magazine expects that trend to continue this year, with high demand from hurricane and fire recovery keeping prices higher.
  • As indicated in the two siding categories above, tech regions in the West, where inventory is low and housing prices have skyrocketed faster than national averages, are reporting higher returns than most others. “Real estate professionals in Silicon Valley rated 17 of our 20 projects as likely to generate more in resale value than project cost if the home where the work occurred was sold within a year,” Remodeling said. “The same was true for 12 projects in San Francisco and the North Bay market of Santa Rosa and for six projects in Seattle.”

Ready to help your customers get more value out of their remodel? Learn more about Versetta Stone mortarless manufactured stone veneer and TruExterior Siding & Trim.

To read more analysis and see results down to metro area, visit the Remodeling 2018 Cost vs. Value portal on Remodeling’s website.