Remodeling Market Memo

CAMBRIDGE, Mass. – Each spring and fall, economist Kermit Baker of the Harvard Joint Center for Housing Studies, presides over a meeting of remodeling industry leaders to discuss the latest market data. This week’s bi-annual event was marked by a preview of a new remodeling market leading indicator index and a look at remodeling growth in the coming months.

After growing at a torrid pace during most of 2005 and 2006 — with rates at or approaching 20 percent during some quarterly periods — the remodeling market is experiencing slower growth in the 5 percent range and will likely stay that way for the remainder of the year.

Regionally, there are places in the country where remodeling is actually declining (think of hard hit Michigan and Ohio where auto industry retrenchment has hit the hardest, or of specifc market bubbles where home prices appear to be headed down), but everywhere else remodeling demand has firm underlying support.

The underlying support, Baker told the group,  comes from three main factors:

• The economy remains in growth mode; recession is not imminent
• There are high levels of home equity — “cash out” refinancing activity remains strong, particularly for adjustable-rate mortgage (ARM) conversions
• Several remodeling niches offer growth opportunities — energy retrofits, rental units, and aging-in-place.

But there are some negatives in the remodeling outlook. According to Baker, those negatives are:

• An ongoing residential recession with soft house prices creating nervousness for homeowners
• Existing home sales (while still high by historic levels) have been trending down
• Business conditions softening at remodeling contracting firms
• Consumer debt levels remain high and subprime mortgage fallout will tighten lending standards

The much anticpated new indicator will be called the Leading Indicator of Remodeling Activity (LIRA), which was previewed at the conference, will be released for the first time on April 19.

Revisit this Blog on the 19th for a complete view of the new indicator.