Slower Growth, But Hopefully Not For Long
Understanding the current remodeling outlook requires a look back at previous periods of slower growth in the market. This is particularly true because, on the face of it, the fundamentals for a strong remodeling market are in place.
Employment growth is strong.
The economy is growing.
Inflation is in check.
Mortgage interest rates are still within historically low ranges.
According to some observers, the remodeling market’s slower rate of growth (about 2% by the end of 2007 according to the Harvard Joint Center for Housing Studies) can be attributed solely to a market psychology. People who would normally buy an existing home in this market and subsequently fix it up are on the sidelines, waiting for a psychic “green light” to move forward with their plans.
This is evidenced by the fact that there are 4.3 million existing homes for sale in the United States right now about an eight month’s supply.
My theory is that the remodeling market and consumers needed this breather and that it will not be a long one. At some point the slower activity in existing home sales will yield to the demand that is clearly building up… the demand will burst this backlog.
For answers on the duration of this backlog, the building cycles have shown that when production home building goes down it fall in a range (peak to trough) that is much more pronounced that a subsequent remodeling slow down. According to Harvard’s Kermit Baker, remodeling cycles typically lag by 3 to 6 months behind production home building cycles. Already there are some production builders saying that the end of their down market could been seen by the end of 2008.
That bodes for stronger growth in remodeling well short of that date.