The home improvement industry continues to grow, exceeding many analyst expectations for the sector. While apartment production continues to level off from cycle peaks and single-family home building grows along a modest yet promising growth trend, the remodeling sector has benefited from other economic facts on the ground.
In particular, home price gains have increased existing homeowner wealth, driven by a lack of existing-home inventory and reduced levels of the construction of single-family homes. According to the most recent Federal Reserve data, homeowner wealth in the U.S. now tops $13.9 trillion. In summer 2011, it was just under $6.1 trillion. These gains in homeowner wealth have enabled solid growth for remodeling spending.
And demand conditions are positive. The housing stock is aging.
Almost 40% of American homes are 45 years of age or older. And Americans are moving less. An aging population and more people remaining in established homes means more demand for structural improvements. This includes both aging-in-place remodeling, as well as the desire to improve the energy-efficiency and resiliency of older homes.
For this reason, remodeler market confidence, as measured by the NAHB Remodeling Market Index (RMI), has demonstrated strength over the past few years. As measured on a 0 to 100 scale, with any score above 50 indicating positive market conditions, the RMI has been in “good” territory for more than five years, with a current reading of 56.
The result has been a period of strong gains for remodeling-related spending. The most recent Census data for home improvement construction spending places the size of the market, as measured by the dollar value of improvements put into place, at $188 billion on a seasonally adjusted annual basis. This marks an almost 20% gain over the past 12 months.
The headwinds for the sector are many of the same forces restraining growth for single-family construction. NAHB surveys indicate that remodelers cite a lack of labor as a key business challenge, along with rising building material prices for lumber, OSB, and drywall. Some of these price gains will be offset as more manufacturing capacity comes online in response to increasing prices. Some are short-term effects due to rising demand for repair and restoration work in hurricane- and fire-impacted areas of the nation. And some, such as softwood lumber prices, are trade policy related. The long-run challenge—access to skilled workers—is an issue that affects remodelers, builders, and developers alike, and it will take an industry-wide effort to surmount.
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