Market Memo

It is difficult to ignore headlines about the increased rate of defaults in ’subprime’ mortgages. Southern California, Florida, Texas and other fast-growing areas of the country, where most of these loans were originated, will certainly feel some impact.

But aside from isolated local impacts and the possible reprecussions on Wall Street as bankers absorb a wave of bad debt, the affects of these foreclosures should not be felt nationally.

And the local picture does not look too bad either.

The Inland Empire of Southern California is one region where remodeling activity might be affected. In this area, just east of Los Angeles, new homes have been built at a rate of 27,000 new homes annually over the past five years. This rate of new home construction was kept alive due largely to the efforts of create mortgage underwriting.

Some buyers were offered 50-year mortgages in order to be able afford a new home. Other buyers were not required to list a source of income. These are bad practices for which a real correction is necessary and healthy. The good news is that remodeling activity is still growing (albeit more slowly) and that population and job growth in Southern California will support new growth in short order. It is projected that there will be another 3 million people living in Riverside and San Bernardino Counties over the next 10 years.

Florida and Texas are similar to Southern California. They are in the sunbelt and their economies will ultimately recover. The latest report from the Joint Center for Housing Studies “Foundations for Future Growth in the Remodeling Industry” support this assertion. Some of the fastest areas for remodeling growth over the last two years have been in these areas.

- The remodeling market inTampa, Fla. was up 26.7%

- Miami was up 39.5%

- Houston was up 9.2%

Located in the Sunbelt, these are non-traditional remodeling markets, but as the median age of homes rises, renovation and remodeling are required.

But beyond these local concerns, the overriding reason why the national remodeling market will not experience any hiccup associatied with mortgage foreclosures is the demographics of the impact.

Much of the professional remodeling market activity is coming from upscale clients. Very few of these higher income clients and their higher dollar kitchens, baths, room additions, and whole-house remodels will be curtailed by higher foreclosures at other income levels.

Take a look at “Foundations for Future Growth in the Remodeling Industry”, the recent report from Harvard. The remodeling market is strong in so many ways. It is a great place to build a future. And fearmongering about mortgage foreclosures should be taken for what it is.