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The National Association of Home Builders (NAHB) is
seeing some softening in the residential remodeling sector. Carmel Ford noted in an article in NAHB’s Eye
on Housing blog several weeks ago that the association’s Remodeling Market
Index (RMI) fell three points to 54 in the first quarter of this year. The
index is constructed in a manner similar to NAHB’s Housing Market Index, but
from a survey of remodelers rather than new home builders and has a breakeven
point of 50. At that level more remodels report market activity is higher than
report it lower than the previous quarter. The RMI has been above that
breakeven point since the second quarter of 2013.
This week another entry in the blog, this one written
by Na Zhao, takes data from the U.S. Census Bureau’s Construction Spending
Report to show a dip of 3.1 percent in expenditures on residential improvements
from February to March. The seasonally
adjusted annual rate of spending in March was $173 billion. More telling, this was down 14.1 percent from
March 2018. Spending reached a peak in
April 2018 of $216.7 billion. The Census
Bureau defines residential improvements as remodeling, major replacements, and
additions to owner occupied housing units.
The number excludes maintenance and repair and any spending on rental or
Zhao says improvement spending was relatively stable during the Great
Recession, falling 30 percent from the peak before the housing crisis while
spending on new single-family construction plummeted 80 percent and multifamily
spending was down 50 percent. It began to recover in June 2009 with small
monthly increases averaging 0.1 percent until taking off in 2013. From there increases averaged about 13 percent
a year until it hit the aforementioned record high last April.
The strong growth of residential improvements in the 2013-2018 period was
largely driven by aging – of both homes and their owners. The aging household
stock was the result of the low rate of new home construction over the past
decade. Half of the nation’s
owner-occupied homes were built prior to 1980 and require some replacements and/or
additions of new amenities. The aging of homeowners motivated many to undertake
projects to accommodate their desire to age-in-place.
Zhao says that while census data often undergoes significant revisions in
subsequent months it does appear that home improvement spending is experiencing
downward pressure from weak existing home sales volume, slowing home price
growth and lingering uncertainty in the economy due to the stock market decline
at the end of 2018 and the partial government shutdown.
In the survey behind the RMI remodelers are asked to assess current market
conditions and demand for various categories of work and their expectations for
conditions six months out. In the current release the portion of the index
reflecting current conditions dropped 4 points from the previous survey, with respondents
especially negative about demand for major additions and alterations work. The forward-looking index was down 2 points.
Ford concludes that the remodeling market will continue to grow in 2019, but
at a more modest pace than previously, saying “The RMI is in line with NAHB’s
remodeling forecast, which projects slower growth as there is declining home price
appreciation and existing home sales volume, but rising construction costs.”