Home Remodeling a Forward Indicator of Housing Bottom?

by devteam May 2nd, 2011 | Share

Builders who specialize in home remodeling are seeing a better market thanrnthey have in years according to the National Association of Home Builders’rn(NAHB) Remodeling Market Index (RMI) released on Friday.  The index rose to 46.5 in the first quarterrnof the year from 41.5 in the fourth quarter of 2010.  </p

The current RMI is the highest the index hasrnbeen since the fourth quarter of 2006.</p

The RMI is based on builders’ perceptions of current remodeling activity andrnon indicators of future activity such as calls for bids.  In addition to the RMI there is an indexrnreflecting each of its two components.  Anyrnscore of less than 50 indicates more respondents view the market activity asrnlower (compared to the prior quarter) than report that it is higher.</p

Current market conditions increased from 43.3 in the fourth quarter to 46.1rnwhile future market indicators jumped to 46.8 from 39.7.  </p

“Remodelers report a jump in activity so far this year and have beenrnreceiving more calls for work and appointments,” said NAHB RemodelersrnChairman Bob Peterson. “However, many home owners are still slow to commitrnto remodeling due to feeling uncertain about the economic recovery andrndifficulty obtaining loans.”</p

There were indications of market growth in three of the four regions.  The RMI rose from 38.8 to 46.1 in thernNortheast and from 39.7 to 46.1 in the West. rnThe South had a marginal rise from 45.8 to 46.1 and the Midwest, whilernstill scoring higher than the other regions dropped substantially from 54.3 inrnQ4 to 47.1. </p

All current indicators of types of remodeling increased: major additions torn50.3 from 48.6, minor additions to 48.0 from 43.9, and maintenance and repairrnto 39.5 from 37.0. Future market indicators also improved across the board:rncalls for bids rose to from 47.2 to 53.1, appointments for proposals to 52.4rnfrom 43.1, backlog of remodeling jobs to 49.7 from 42.6, and amount of workrncommitted for the next three months to 32.1 from 25.9.</p

NAHB asked an additional special question of remodelers in this surveyrncycle: why did they think prospective customers are holding back fromrnremodeling their homes?  Ninety-percentrnof the builders cited the difficulty of obtaining financing while 81 percentrnnoted that customers had lost equity in their homes and 74 percent mentioned economicrnuncertainty.  Other reasons given byrnbuilders include their reluctance to invest in a home that might not hold itsrnvalue (67 percent), negative information from the media (62 percent) andrninaccurate appraisals which leading to difficulty in getting financing (54rnpercent.) </p

“Home remodeling continues to slowly increase and continued growthrnthrough the year is expected.” said NAHB Chief Economist David Crowe.rn”The fact that some indicators are breaking 50 means remodelers are seeingrnimproving activity in their markets. While credit scarcity and economic uncertaintyrncontinue to weigh down remodeling, signs of increasing consumer interest arernpromising.”</p

“With so many foreclosed properties sitting empty on the market we can expect remodeling and rehabbing to be a leading indicator of a bottom in the housing market”, says MND’s Managing Editor Adam Quinones. “We already know there is dearth of affordable rental housing available to low income renters. From that perspective, FHA should open its 203(k) program to investors if they want to accomplish their affordable housing goals.”

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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