NARI Leadership Summit: Hanley Wood projects growth in remodeling market

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At the NARI Fall Leadership Summit 2013, Jonathan Smoke, Hanley Wood chief economist, offered a look at the year ahead, including some of his company’s latest data, in his presentation, “Big Data and the Future of Remodeling.” Many NARI members were visibly relieved when Smoke offered a positive outlook for 2014 and beyond.

Hanley Wood creates its Residential Remodeling Index and Forecast by gathering local permits from U.S. municipalities and combining those data with local contractor surveys. He noted that pro-worthy remodeling activity is up significantly this year. “This year should end as the best growth year since 2010,” Smoke said. “Next year should be the best growth year since 2005, and the housing market should be fully recovered nationally in 2015.”

Smoke offered data showing that existing home sales are above normal levels and that resales of existing homes are at healthy levels, while real-estate owned (REO) sales are decreasing. Nationwide, foreclosures and REO closings are past peak and declining each month. “We are rapidly working off the overhang—properties that are on banks’ books and can drag entire markets down,” he said.  “The healthiest markets have already worked off their overhang.”

Supplies of both new and existing single-family homes are currently far below their normal levels. Nationally, home prices are rising. The new home median price is back above $250,000, and the price forecast for existing home calls for steady increases. The median price per square foot is also increasing in sales of both new and existing homes.

Smoke paused in his presentation to note that the home price data was not seasonally adjusted. He cautioned audience members to always check this characteristic when considering news reports. Comparing seasonally adjusted data with unadjusted data is like comparing apples to oranges and will yield faulty conclusions.

He also pointed out that investors were the catalyst in the resale market, but they have been diminishing in share in 2013. He further noted that we have likely seen the peak of the investor purchase cycle. In addition, homebuyers have higher incomes than in the recent past, a sign of stability in the market.

As construction unemployment continues to decrease, those gains are helping the overall U.S. unemployment rate. Looking ahead, the national employment growth forecast is 2.1 percent for 2014. But states vary and, overall, the West is the healthiest region. Parts of the Midwest and the Northeast continue to struggle.

The trend is similar when looking at the state-level GDP for 2013-2014. The predicted GDP for the country as a whole is 2.9 percent, but many states are expected to do much better. Again, these include many Western and Southern states.

Jonathan Smoke, Hanley Wood's chief economist, shares good news with NARI delegates at the 2013 Leadership Summit: The remodeling outlook is good heading into 2014.

Jonathan Smoke, Hanley Wood’s chief economist, shares good news with NARI delegates at the 2013 Leadership Summit: The remodeling outlook is good heading into 2014.

In terms of consumers, confidence has been variable but has shifted more to the positive lately. According to Smoke, the recent 16-day partial government shutdown may have caused a temporary dip in those numbers, but he expects confidence to bounce back quickly.

When it comes to plans to buy a home within the next six months, 5.9 percent of Americans plan to buy an existing home. An additional 1 percent of Americans plan to buy a newly constructed home within that timeframe. This spread clearly favors NARI members, as those existing homes will undoubtedly need updating and personalizing to suit their new owners.

Smoke also took the opportunity to refute the often-repeated comment that the Federal Reserve Bank’s policy drives housing activity.

“Actually, life is what drives housing,” he said. “And life events are starting to rise in frequency. People are taking their lives off hold again.” In showing a list of top 10 “consideration triggers,” he pointed to “Tired of current home,” the No. 3 item: “That’s my favorite and definitely good news for NARI members.”

He also urged NARI members to keep their eyes on the prize: the baby boomers. In 2012, 41 percent of all remodeling projects were completed for 55+ households. “It will be difficult for any generation to surpass the wealth of the boomers, though Gen Y has a slight edge in numbers,” Smoke said. “On the other hand, Gen Y is years away from maturing from their DIY mentality.”

According to Hanley Wood revenue expectations by audience segment, 59 percent of remodelers currently believe that 2014 revenues will exceed that of 2013. Last year, 51 percent expected to see revenue growth. As far as what types of projects Hanley Wood audiences are expecting to do next year, bathroom and kitchen projects, along with repairs and maintenance, occupy the top three slots. Kitchens jumped 5 percentage points to 61 percent, from third place to first, the biggest change among the survey’s seven categories.

In which markets will all this growth occur next year? “Essentially, every market in the country will have growth,” Smoke said. “But a lot of that growth will be occurring in Texas.”

Top 10 Remodeling Markets

  1. Charlotte-Gastonia-Rock Hill, N.C.-S.C.
  2. Buffalo-Niagara Falls, N.Y.
  3. San Antonio-New Braunfels, Texas
  4. Houston-Sugar Land-Baytown, Texas
  5. Dallas-Fort Worth-Arlington, Texas
  6. Austin-Round Rock-San Marcos, Texas
  7. Raleigh-Cary, N.C.
  8. Pittsburgh, Pa.
  9. Rochester, N.Y.
  10. Oklahoma City, Okla.

These may be the fastest-growing markets, but there were not many surprises as to the largest remodeling markets for 2014:

  1. New York-Northern New Jersey-Long Island, N.Y.-N.J.-Pa.
  2. Los Angeles-Long Beach-Santa Ana, Calif.
  3. Chicago-Joliet-Naperville, Ill.-Wis.-Ind.
  4. Dallas-Fort Worth-Arlington, Texas
  5. Washington-Arlington-Alexandria, D.C.-Va.-Md.-W.V.
  6. Philadelphia-Camden-Wilmington, Pa.-N.J.-Del.-Md.
  7. Houston-Sugar Land-Baytown, Texas
  8. Boston-Cambridge-Quincy, Mass.-N.H.
  9. San Francisco-Oakland-Fremont, Calif.

10. Atlanta-Sandy Springs-Marietta, Ga.

In closing, Smoke focused on a few key points and how they will impact individual remodelers: Housing is returning to a normal cycle and demand is shifting to higher price and quality points. “This is a discussion you should be having on a business level now, about whether it’s finally time to react to outside forces and raise prices again,” he said. “Next year is going to be the best year since 2007, only to be replaced by 2015, when we are finally fully recovered.”

Smoke’s bottom-line 2014 forecast: 11,557,249 pro-worthy remodeling and replacement projects (growth of 7 percent).—Darcy Lewis

To download the slides from this presentation, click here.

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