Remodeling Market Memo

CHAVEZ RAVINE, Los Angeles, Calif. – I tip my hat to the remodelers, architects, builders and suppliers who ply their trade in the Los Angeles basin. How they manage to navigate this sprawling metropolis and get work done is a mystery to me.

Los Angeles

At the Pro Expo held at Dodger Stadium this week, I anticipated that I would finally get to meet a good cross section of remodelers from this great city all in one location and I did. But I had hopes for more.

In all, more than 300 attended the event, which was held on a sparkling, warm and clear evening, but many more who had planned to come ultimately were unable to make it due to the vagaries of traffic. This was confirmed via text messages and e-mails I exchanged with some who had said they were coming but cited the city’s notorious traffic as the reason for the change of plans.

Said one remodeler friend: “If I try to get there at the end of the day, it might take me two hours as opposed to 45 minutes to make the drive.”

I allowed plenty of time for my mid-day drive up I-5 to central Los Angeles from neighboring Orange County, so the traffic did not bother me. But in this town, the mantra must and should be: “Make No Unnecessary Driving Trips.” The negative repercussions are just too costly in terms of lost time and money.

Qualified Remodeler magazine has had a large and vigorous readership in California from from our very first issue in 1975. Today almost 15 percent of our print circulation, which consists of presidents and owners of remodeling firms, is mailed within the state of California. For demographic reasons, this stands to reason. The state is home to a very large segment of the U.S. population. Its largest city, L.A., is not just a city. It is an urbanized region of many cities with lots of natural topography to further complicate matters. Back in the old days, Qualified Remodeler had a strong connection to the bygone Western Remodeling Show. That event, I am told, managed to be a reliable gathering spot for hundreds of the regions top remodeling firms.

Our two industry associations NARI and NAHB Remodelers both have active chapters in Los Angeles, but not as active as they should be, given the density of firms located there.

I am still looking for a time and a place where a bigger chunk of the vibrant and highly successful home improvement and remodeling community in Los Angeles can gather. It seems that all of the things that make L.A. great: its economic vitality, its weather, its mountains, also serve to keep it compartmentalized into small, extremely local segments.

Maybe it is time to resurrect the old Western Remodeling Show…. as soon as they build more rail lines and highways.

ARLINGTON HEIGHTS, Ill. — Silicon Valley investor John Doerr is trying to do for green tech what he did for Internet companies like Google and Amazon. Not only is his firm investing in green technology firms that offer a long-term upside, but, in his capacity as a member of the President’s Economic Recovery Advisory Board (PERAB), Doerr is also promoting a $23 billion program to weatherize thousands of American homes. It is still too early to know if the program will be enacted, but it is currently gaining momentum at the highest levels of government.

Doerr’s program was the centerpiece of a PERAB discussion held with the President on Nov. 2 at the White House. And in subsequent weeks as the outlook for a “jobless recovery” has grown more likely, so too has Doerr’s proposal, with proponents of the idea added to the list every day.

“In the very near term, the way we can generate the most jobs is through home retrofits,” Doerr told the group in a videotaped meeting in the Roosevelt room. “There is about 17 percent unemployment in the construction industry right now and there are about 200,000 home retrofits done each year. But over the next 20 years, we probably ought to be doing 5 million of these retrofits per year, or saving the energy wasted — up to 40 percent — over 100 million existing homes. Were we to develop a program to do that, we could create hundreds of thousands, even 1 million jobs per year in an industry with high-wage jobs and where the savings from the work stays in the pockets of American consumers.”

Officially dubbed “Home Star” (in a nod to the Energy Star program), the program would consist of $18 billion in homeowner incentives, $2 billion for quality assurance audits on energy efficiency projects, and $3 billion in retailer incentives as well as funds to create awareness for the program.

 ”The way I like to put it is that ‘Cash for Clunkers’ mobilized America’s car dealers to cause change very rapidly,” Doerr told the group. ”The equivalent of that for home retrofits would be ‘Cash for Caulkers.’ What we would do is incentive consumers to work with our out of work trades, remodelers and builders to do this work.” The phrase got a chuckle from the President and other economic recovery board members, which include GE CEO Jeff Immelt, White House chief of staff Rahm Emanual, former Fed chairman Paul Volcker and current chair of the council of economic advisors, Lawrence Summers, among others.

 Building Performance Institute Backs It

Among the clear winners if Home Star moves forward are agencies that provide credentials for performing energy audits, namely Malta, N.Y. based Building Performance Institute. Not surprisingly, the organization offered its official backing to the program.

“The nationwide unemployment rate is at 10 percent, but the construction industry is one of the hardest hit at 17 percent. The need to install energy efficiency improvement tactics on 5.9 million homes will bring people back to work,” says David Hepinstall, BPI’s Chairman of the Board. “Struggling contracting companies can transition their business model or a portion of their business completely into weatherization services, including whole-home energy audits and the development of work scopes for energy retrofit improvements, or with appropriate training and certification, begin to incorporate some weatherization improvement measures into their existing areas of expertise.”

New York Times writer David Leonhardt recently wrote a feature story about the Cash for Caulkers initiative. He also dug up some of the proposed details and posted them on his blog.

CAMBRIDGE, Mass. — Actually, I attended Miami University in Ohio. But more recently, I have been a part of a remodeling group that meets at Harvard every six months. There, economist Kermit Baker hosts an update of the remodeling industry research he has supervised since 1995. I have been attending these meetings consistently since 2003, when our magazine joined the Remodeling Futures Steerting Committee of Harvard University’s Joint Center for Housing Studies. To me, it is like one long conversation. You pick it up at intervals and lately the number of participants in this conversation has grown. Plenty of new information stands out from the most recent meeting, but here are two points worth emphasizing.

1. Immigration: The impact of immigration (legal) has tended to be in the abstract when it comes to actual dollars being spent on home improvement projects. It has long be noted that well-educated foreign born nationals have been legally immigrating to the United States at a clip of about one million people per year since 1993. This does not sound like much, in comparison to the total U.S. population of 307 million, but one must remember that these legal immigrants tend to be ready-made households. They have income and they are buying and renting homes from our existing and new stock of 130 million homes. It adds up to about 450,000 additional households added to the housing market — each year – over the last decade and a half. In past meetings of the RFSC, it has been well established that the greatest impact of these homeowners has been felt in so-called gateway cities — New York, LA, Miami, Chicago, Denver and Houston, among others. This meeting, research associate, Abbe Will provided  new data on the amount that legal immigrans actually spend on home improvement — and the surprise is that they tend to spend more than their native counterparts. Immigrants spent $2,550 on home improvement annually between 2001 and 2007, while the average for the rest of U.S. homeowners was $2,440. In total, this amounted to $23.4 billion in home improvement spending in 2007. These real dollars attached to immigrant spending add are bolstered by findings that immigrants tend to be “more mobile and active participants in the housing market.” They tend to have larger families and significantly higher house values. And they are disproportionately younger compared to native-born homeowners. Lastly, immigrant homeowners tend to increase their spending on home improvements the longer they live in the U.S. For remodelers looking for every market opportunity, this one is hard to ignore.

2. The Coming Recovery: Mr. Baker’s assessment of the remodeling market is that its decline is not as steep as it once was. One of the bigger achievements of the steering committee’s ongoing work is the development of a leading indicator of remodeling activity, the LIRA. It is typically presented in a three-quarter trailing average. This is designed to smooth out the trend lines and to remove the bumpiness of specific readings along the way. For the past few quarters, the LIRA has shown that remodeling has declined at a double-digit rate. Now the LIRA has shown single-digit declines that suggest the market is probably headed for a gradual recovery beginning in the first quarter of 2010. What was interesting was a version of the LIRA that removed the trailing average component. It showed that remodeling is very near to the point of posting a quarterly gain. The single quarter version of the LIRA shows that remodeling will likely decline only .09 percent in the fourth quarter of 2009. In the past I have learned that remodeling grew at an unsustainable pace during the first seven years of the decade. Our approaching new low will, in fact, be very large compared with most of the last 20 years. I learned that projecting a flat year ahead is probably the way to go for most remodelers. But, as always, there will be those who outperform their competitors. 2010 could be a winning year for focused and aggressive firms.

The word “Green” has come to mean many things to many people. In fact, I think we are nearing the point in our larger “Green” conversations — with clients, with suppliers, with our peers — where we need to be a lot more specific.

Does that mean that I think Green is a passing fad? On the contrary. I think it means that we are heading to a new point in the spectrum of the adoption of “Green” attributes — in remodeling, building, designing and replacing. I think that we need move beyond the sheer enthusiasm that many of us have for the topic and for the promise that it holds for the remodeling industry.

In many ways, serious proponents of green have begun avoiding the word in favor of going directly to one of the term’s component parts. Sustainability: There are whole schools of thought pertaining to this one topic. Is the overall plan for a remodeling project built with sustainability principles in mind? Are the products used — from cabinets to countertops and decking material — made with materials that can be replaced. Life Cycle: This is a narrower topic. The durability of the products selected is typically well known. Will it last for 50 years? If the client sells the house and a product is ripped out, is there another use for the product. Can it be recycled? Energy Efficiency: This is a particularly powerful topic among remodeling clients these days. It is practical. It has a clear payback. And, with the current Stimulus Package tax credit in place, the relevance to focus on energy-efficiency is particularly urgent. Are you offering windows that will qualify for the tax credit. Are your clients interest in solar or geo-thermal? The payback is longer but the tax credits are bigger. Carbon Footprint: Can a selection be made to source locally produced materials? Energy-efficient windows that are shipped on a big rig across the country might do wonders for the homeowner who pays the subsequently lower energy bills, but the environment is slightly worse off from the carbon emissions involved in the long-distance shipping.

These are just a few of the ways green, and conversations about green can be taken to more useful levels. There are numerous other topics – de-construction of used materials, water-conservation — and this is ultimately where the conversation must go. Eventually, there may come a day when green completely recedes into the background. All good remodeling and building will be green, but we just won’t have to think of it that way.

The housing market is not out of the woods by any stretch of the imagination. But July 28, 2009 may go down as a day when the market and perhaps the rest of the economy began to be seen as resting on terra firma once again. Granted that this new terra firma is substantially below peak levels, but the notion that we are entering a period where further declines in home prices may be a thing of the past is nonetheless significant and symbolic.

The news that the Case Schiller index of home prices increased by .5% nationally and rose or stayed the same in 15 of 20 leading metropolitan areas is also a big moment for remodelers and home improvement professionals. It may mean that remodeling clients will, once again, be able to more easily calculate the future value of improvements they make today. For the past couple of years, and especially since the financial crisis of last fall, home-price declines have unerved a lot of potential customers. Many of have been waiting on the sidelines for better decision-making conditions. So here’s the question: how much remodeling money has been waiting on the sidelines? Is this the perverbial leak in the dike that eventually leads to a dam burst of new “discretionary” remodeling spending? Time will tell, but after almost three years of home-price declines, that .5% increase feels very good, as it should to everyone connected to the remodeling market.

A few days into the mandatory energy audit scheme put in place by the Austin, Texas city council and already there is negative press about the new ordinance.

Page three of today’s Wall Street Journal carries a story about how the new law is ”vexing” the city’s homeowners. Some complain that disclosures will dampen home-sale prices. Others quoted in the story resent criminalization of non-compliance – the law carries the threat of a misdemeanor charge. And many are simply confused by the new law. They are surprised to learn that an energy audit is not part of the typical home inspection.

Formally known as The Energy Conservation Audit and Disclosure Ordinance, the new law took effect in Austin on June 1. And while it does mandate an energy audit for home sellers, it does not require them to pay for any improvements that may be uncovered. Similar ordinances in San Francisco and Berkeley, Calif. require put a home-improvement onus on the homeowner prior to selling.

According to the Austin Energy web site www.austinenergy.com the ordinance is part of a broader city Climate Protection Plan, which aims to substantially reduce the region’s carbon footprint. The goal is to offset peak demand for electricty by 700 megawatts by the year 2020. This is an admirable goal, but should these constraints be put on homeowners, perhaps to their financial detriment? The answer in most places remains ‘No’. But we can certainly expect that energy audits will become an increasing part of the home selling disclosure process — one way or another. Even if an energy audit is not required, many savvy home buyers are going to ask for one at their expense, or (in this slower home buying market) may require one conducted by the seller prior to closing.

One can also envision a time, in the not too distant future, when home buyers will reward those who have paid for energy performance improvements and pay a premium for homes that score well on energy audits. To a homeowner who puts in new windows, adds insulation, seals their HVAC system, a $300 energy audit will seem like a small price to pay for tests that will ultimately boost their asking price.

Legally required energy audit disclosures are fair. Home sellers already expect to provide past home energy bills to prospective buyers. It makes sense because it brings greater clarity to a free market for homes. It brings more transparency to the home buying process. And in the end, laws like the one that recently took effect in Austin, will help us as a country move toward a more energy independent future.

What do you think about the Austin Energy-Audit Ordiannce? We’d love to get your feedback.

ARLINGTON HEIGHTS, Ill. — April 16, 2008 — When remodelers talk about the need to improve their Web site, their instincts are 100 percent correct. If ever the time was right to work on your Internet strategy, it is now. So much of the traditional ways for generating leads and making your phone ring has become less effective with the rise of the Internet. Let’s face it consumers (your customers) research who to call online before they see people about a remodeling project. If your Web prescense is not a good one, it will hurt you.

 Once you’ve got a good Web site with excellent content and graphics, you’ve got to make sure your page gets properly linked to the Web. There may factors to consider but they boil down to three key areas.

Optimize your Web site. Remodelers are discovering that their most qualified leads come to them via the Internet. Success involves incorporating keywords that drive your target customers to your site. This process is called search engine optimization or SEO.

Sign up for Internet referral services. Advertise online and sign up with a lead-generating company such as Yodle.com, ServiceMagic.com, EveryContractor.com, RenovationExperts.com or Contractors.com. Your phone will not ring, but your computer will ping. Remodelers find that being fastest and first to respond is critical to proper utilization of these leads. Second best is not good enough in this arena, so your team must be set up to jump on local leads as soon as possible.

Use Google AdWords. Use Google AdWords to drive traffic to your Web site and increase your visibility. This can be thought of as the broadcast advertising of the Internet. Whereas search engine optimization tends at its best to drive qualified leads to your site, Google AdWords can give you much greater traffic that needs more qualifying. It will certainly make your phone ring, but it can be expensive.

These days, a good Web site won’t get viewed by very many people unless these three areas are addressed somehow. Use them and you will certainly improve your lead flow.

ARLINGTON HEIGHTS, Ill. — March 17, 2009 — In its efforts to bolster prudent lending practices, the Federal Reserved recently announced upcoming rule changes that would eliminate one of the most popular ways to finance home improvement projects — “same as cash” offers. Under the new rules, “same as cash” offers whereby consumers agree to pay the total amount owed in a given period — 6, 12 or 24 months — for no interest. However, if the loan is paid later than the period, retroactive and high interest rates kick in. The new rules are set to take effect in July of 2010.

 Here’s a story from USA Today that tells more:

Fed changes rules on retailers’ no-interest offers By Jayne O’Donnell, USA TODAY “No interest! No payments for 18 months!” “Two years, same as cash!”Retailers are scrambling to save the deals they love to shout about.A new federal rule is expected to change the promotion and perhaps even the availability of the months-long special offers, which retailers often market for big-ticket items like TVs, furniture and appliances.The rule change, made by the Federal Reserve, does not take effect until July 2010, but some retailers are already modifying terms of their deals so they expire before then, according to the National Retail Federation. At issue is the deferred interest provisions many include — typically in fine print — as part of the “no interest” or “same as cash” deals.Confusion abounds over what the rule change exactly means, and the Federal Reserve is expected to issue a clarification in April. One likely effect: more explicit advertising of the deferred-interest rules, perhaps as prominently as the “No interest!” claims.“Whatever (the Fed’s) intent, it’s unclear enough that a lot of retailers are curtailing these programs because they don’t want to be caught holding the bag,” says NRF spokesman Craig Shearman. “The bottom line is, consumers are being impacted.”Officials from Home Depot, which is advertising a six-month, no-interest loan, declined to comment. Sears spokesman Christian Brathwaite says it is reviewing the rule and is working to meet the Fed’s concerns and “still help meet our customers’ credit needs.” Federal Reserve officials declined to comment.Favorite of furniture retailers The no-interest or deferred-interest loans come in many forms and often draw varied responses from consumers and credit counselors about whether they are a great deal or a way to take advantage of already struggling consumers.The deals can run from a few months to two years or more, and sometimes don’t require regular payments. When minimum payments are required, they may not cover the whole balance by the end of the loan, leaving a lump sum payment due at the end.If the loan is paid by the due date, the interest is waived; sometimes, though, monthly payments must be paid on time as well. If not, the loan converts into one where the consumer owes interest on the outstanding balance — calculated back to the date of the purchase, not the month the payment was missed.That can make a $1,000 television cost $1,500, depending on the terms, for example.Therein lies the controversy.The loans, which are used by many furniture, home improvement, jewelry and appliance stores, were addressed in the sweeping Unfair or Deceptive Acts or Practices act approved in January, which was supposed to clear up confusion about the varying terms of different types of “no interest” or “same as cash” loans. Auto dealers’ loans are not included, because the deals they offer under similar advertisements are not revolving lines of credit, as retailers’ deals are.Anything that eliminated the loans would be “a huge nail in the coffin for furniture retailers, considering that 70% of them offer deferred financing,” says Ray Allegrezza editor in chief of Furniture Today.NRF general counsel Mallory Duncan says some stores estimate about 75% of people pay such loans off on time, but that varies from program to program. Duncan says the people who fail to pay their loan balances by the deadline subsidize those who do.After all, he says, few finance companies would offer loans that didn’t pay any interest.Finance companies that provide the loans already require retailers to pay them a percentage of the purchase price, sometimes as much as 5%. If the rule prohibits deferred-interest charges, as the NRF says it appears to, then Duncan says retailers would have to contribute a much higher percentage of the purchase price. That would make it too costly for them to offer the deals.Works if you’re organized The loans do have their fans.Moxie Karasek of Berwick, Pa., says she’s purchased furniture using the loans, and “it worked perfectly.”“If you have discipline, I say, ‘Go ahead and do it,’ ” she says.Nancy Gleason of Derwood, Md., has taken out no-interest loans for furniture, jewelry and computers.“Whenever I have used these types of payment plans I have always marked the calendar to make sure I pay the amount off prior to the target date,” she says.Even Gerri Detweiler, a credit adviser at Credit.com, says, “If you’re careful, it can be a really good deal.”Detweiler says she financed a large home remodeling project at Home Depot using an interest-free loan and recalls the store clerk warned her the day — and time — the balance was due and that if she missed it she’d be hit with hefty charges.Catherine Williams, vice president of financial literacy for non-profit credit counseling program Money Management International, says eliminating the deals would not be a big loss to consumers, as most already have credit cards they could charge the purchases on.She says the loans can be a boon to those who are “truly budget-minded,” but recommends them only for people who can discipline themselves to “faithfully deposit” the equivalent of monthly payments into their savings account and withdraw it to pay the balance by the deadline.“The reality is, many consumers aren’t like that,” says Williams.Detweiler says she wonders whether most people would take out the loans if the high interest rates that apply after the deadline were more prominently advertised, but people are so “optimistic about their ability to pay” that they still might not pay attention. She also says that those with shaky credit histories must recognize that taking out such loans will affect their credit scores.

“I personally think they are a rip-off,” says Yolanda Hawthorne of Dallas. “I say go without until you can pay cash.”

ARLINGTON HEIGHTS, Ill. — Home price increases were the primary driver of discretionary remodeling spending during the past decade. Now the Federal Government is aiming to keep recent price declines from spiralling further down. To that end, Treasury Secretary Timothy Geihtner announced a sweeping loan modification program aimed at responsible homeowners who are current on their mortgages and have jobs. It is estimated that 1 in 9 home owners will be eligible to receive a lower monthly payment.

Stay tuned to Qualified Remodeler.com today and in the coming weeks as this important housing industry program moves forward.

 Below is a release from the U.S. Department of the Treasury yesterday.

Relief for Responsible Homeowners: Treasury Announces Requirements for the Making Home Affordable Program

On March 4th, The Obama Administration announced new U.S. Department of the Treasury guidelines to enable servicers to begin modifications of eligible mortgages under the Administration’s Homeowner Affordability and Stability Plan – announced by President Barack Obama just two weeks ago. The release of detailed requirements for the “Making Home Affordable” program facilitates implementation of the critical provisions that will help bring relief to responsible homeowners struggling to make their mortgage payments, while preventing neighborhoods and communities from suffering the negative spillover effects of foreclosure such as lower housing prices, increased crime and higher taxes.

Making Home Affordable will offer assistance to as many as 7 to 9 million homeowners, making their mortgages more affordable and helping to prevent the destructive impact of foreclosures on families, communities and the national economy.   

The Home Affordable Refinance program will be available to 4 to 5 million homeowners who have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac.  Normally, these borrowers would be unable to refinance because their homes have lost value, pushing their current loan-to-value ratios above 80%.  Under the Home Affordable Refinance program, many of them will now be eligible to refinance their loan to take advantage of today’s lower mortgage rates or to refinance an adjustable-rate mortgage into a more stable mortgage, such as a 30-year fixed rate loan. 

GSE lenders and servicers already have much of the borrower’s information on file, so documentation requirements are not likely to be burdensome. In addition, in some cases an appraisal will not be necessary.  This flexibility will make the refinance quicker and less costly for both borrowers and lenders.  The Home Affordable Refinance program ends in June 2010. 

The Home Affordable Modification program will help up to 3 to 4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments.  Working with the banking and credit union regulators, the FHA, the VA, the USDA and the Federal Housing Finance Agency, the Treasury Department today announced program guidelines that are expected to become standard industry practice in pursuing affordable and sustainable mortgage modifications.  This program will work in tandem with an expanded and improved Hope for Homeowners program.  

With the information now available, servicers can begin immediately to modify eligible mortgages under the Modification program so that at-risk borrowers can better afford their payments.  

LAS VEGAS — As I walked the aisles of the International Builders Show, I snapped shots of products that caught my attention. They are presented in the order they came out of my BlackBerry camera. Hopefully, they’ll give you a flavor for the show. (Apologies to the public relations people out there who work so hard to send us great photography. But, hey, this is a blog. It is supposed to be edgy. We’ll put the pro shots in the magazine.)

Remodelers have been using Eldorado Stone as exterior products for many years. But over the last few years the company has steadily increased its ideas for interior accent walls. The Gemstone series: VinoWall, ArtWall and CandleWall demonstrate three dramatic but different applications for the company’s various masonry stone veneer products.

CandleWall Display at IBS

ArtWall at the IBS Eldorado Booth

I visited a lot of window manufacturing companies while I was at IBS: Pella, Marvin, Milgard to name a few. There were many new styles and performance grades of windows on display at the show. But I live in an old house, so the one shot I had in my BlackBerry from of a window company exhibit was a Marvin Signature Series casement window that opens inward. It is exactly like the six inward opening casements that were included in the 1912 Craftsman Bungalow I own, only better and a lot more energy efficient.

Vinyl siding manufacturers also featured prominently in my booth visits. I would say that I was struck by the sheer breadth and depth of colors and styles. StyleCrest, I think, went the furthest demonstrate the range to which viny siding can be taken by dislplaying a log-cabin panel, as well as a camouflage version.

Camouflage Viny Siding from StyleCrest

Log Cabin Siding

James Hardie’s fiber cement offerings have grown as well. While visiting their booth, I snapped a shot of their new Reveal product, shown next to their Artisan Lap.

Deck safety is a huge issue in the U.S. Simpson Strong-Tie continues to center its new product offerings around innovations in this area. I held a new, single-piece device that strengthens the connection between railings and the actual deck joists. This helps deck builders and remodelers avoid simply connecting railings to the boards that cover the joists at great long-term peril to deck users.

I spent a good deal of time understanding two new drills from Festool. This company conducts years of R&D and field testing before any new product is released. Here are two new drills that will be released this spring. I asked Festool’s Rick Bush in an e-mail to sum up the benefits of the new drills in one sentence. His response:

I’ll pack this sentence… 

The Festool T drills represent the best technologies (Lithium, Brushless motor, Electronic controls) coupled with maximum versatility with the FastFix chuck system for a tool that does as much as 5 tools in a long lasting, lightweight, and powerful package.

 There you have it. 

Lastly, here is one of several shots that show the side of Vegas that I did not come to see, but experienced nonetheless. This was the scene at the NAHB’s Sales and Marketing Council’s “Nationals” award banquet. This event recognizes those NAHB members who had marketed and sold the most new-construction homes. After thriving in a very tough fourth quarter of 2008, these folks had every right to celebrate.