the outlook for the home improvement industry€¦ · remodeling market issues 1. broader housing...
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© 2 0 1 1 P R E S I D E N T A N D F E L L O W S O F H A R V A R D C O L L E G E
The Outlook for the Home
Improvement Industry
Kermit BakerJoint Center for Housing Studies
Remodeling Market Report2012 IBS
February 10, 2012
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Remodeling Market Issues
1. Broader housing market conditions are creating a drag for home
improvement spending.
2. Even with downturn, remodeling spending approaching $300
billion, and accounts for about 70% of residential spending.
3. Strongest sectors at present are energy efficiency upgrades,
reinvesting in distressed properties, and aging-in-place retrofits.
4. Leading indicator for remodeling points to market volatility
continuing, but stronger growth in the second half of the year.
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House Prices Nationally Have Fallen More Than
30% From Their Peak
3
Index: January, 2000=100;
Source: S&P/Case-Shiller Home Price Index: Aggregate index - 20-metro composite;
130
150
170
190
210
2004 2005 2006 2007 2008 2009 2010 2011
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Homeowner Mobility Has Been Trending Down,
But Fell Sharply During the Recession
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
1988 1990 1992 1994 1997 1999 2001 2003 2005 2007 2009 2011
Share of owners moving in past year
Source: US Census Bureau, Current Population Survey.
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House Prices Beginning to Recover in Key
Northeast and Texas MarketsChange in house price index, year over year, Oct 2010 – Oct 2011
Note: Metros mapped are of the 45 largest for which data is available.
Source: CoreLogic House Price Index, 2011.
National average = -3.9%
10 metros with
largest increase
10 metros with
largest decrease
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Metro Areas With Recovering House Prices
Generally Seeing Fewer Homeowners UnderwaterNegative equity share, Q3 2011
Note: Metros mapped are of the 50 largest metro areas and divisions that have 50,000 or more loans.
Source: CoreLogic Negative Equity Report, 2011.
National average = 22.1%
10 metros with
smallest share
10 metros with
largest share
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Percent change in Q4-2011 as compared to Q4-2010
36.9%
3.0%
-2.5%-4.0%
-6.8%-10%
0%
10%
20%
30%
40%
BuildFax Census HIRI H-W Mkt Int NAHB - RMI
There are an Unusually Broad Range of Measures
of the Health of the Home Improvement Industry
Notes: BuildFax and Census estimates are based on October and November 2011 responses, NAHB calculated as Q4-2011 % below neutral score of
50.
Sources: BuildFax Remodeling Index, Home Improvement Research Institute Consumer Sentiment Tracking Study, U.S. Census Bureau C-30 series,
Hanley-Wood Market Intelligence’s Residential Remodeling Index, NAHB Remodeling Market Index.
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Even with the Downturn, the Remodeling Market
is Nearly $300 Billion
108 121 136162 172
231274
232 231 23041
4044
4857
49
52
54 49 49
149161
180
210229
280
326
286 280 279
0
50
100
150
200
250
300
350
1995 1997 1999 2001 2003 2005 2007 2009 2010 (e) 2011(f)
Rental Units Owner-Occupied Homes
Billions of dollars
Sources: JCHS tabulations of the 1995-2009 American Housing Surveys (AHS); US Department of Commerce Survey of
Expenditures for Residential Improvement and Repairs (C-50); and Estimating National Levels of Home Improvement and Repair
Spending by Rental Property Owners by Abbe Will, JCHS Research Note N10-2, October 2010.
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Remodeling Has Contributed a Growing Share of
Residential Investment Since the Downturn
20
30
40
50
60
70
80
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
(p)
20
11
(e
)
Improvement and repair expenditures as a share of total residential investment (percent)
Notes: Total residential investment expenditures include the value of construction put in place for new single-family homes, multifamily
homes, and improvements and repairs to owner-occupied and rental units.
Sources: JCHS tabulations of the 1995-2009 AHS; US Census Bureau, C-50 and C-30 series; McGraw-Hill Construction, Commercial &
Industrial Alterations; Bureau of Labor Statistics, Consumer Price Index; and the JCHS Leading Indicator of Remodeling Activity.
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Homeowner Improvement Spending Evenly Split
Between Discretionary and Replacements
Kitchen projects,
11.6%
Other adds/alts,
15.3%
Interior replac.,
10.4%
Exterior replac.,
20.4%
Property imp.,
14.6%
Disaster repairs,
5.7%
Bath projects,
8.6%
Systems ups.,
13.4%
Spending by homeowners for improvements, 2009
Source: Joint Center tabulations of the 2009 American Housing Survey.
Homeowner improvements = $185.1 Billion
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Planned Spending on Home Improvements Has
Been Unusually VolatileMonthly averages compared to year-ago level for planned spending
-13.0%
-7.9%
-8.4%
-10.6%
-10.9%
-14.9%-16.3%
-14.5%
-9.2%
-1.8%
3.1%
4.9%
-0.5%
-3.6%
-2.3%
-1.5%-2.5%
-3.2%
4.2%
6.6%
7.2%
1.7%
-1.5%
-4.0%
-2.5%
1.0%
5.3%
10.2%
13.4%
10.4%
2.8%
-3.8%-2.5%-2.3%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; December 2011
estimate based on November and December data only.
Source: JCHS tabulations of the Home Improvement Research Institute’s monthly Consumer Sentiment Tracking Study, Feb. 2008 – Dec. 2011.
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-20%
-10%
0%
10%
20%
30%
Kitchen & bath, Outside attachments, Interior, Other room additions & alterationsExterior, Systems & equipmentAll Projects
Monthly averages compared to year-ago level for planned spending on home improvement
projects by project type
Planned Spending on Replacement Projects is
Creating the Unusually High Levels of Volatility
Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; December 2011
estimate based on November and December data only.
Source: JCHS tabulations of the Home Improvement Research Institute’s monthly Consumer Sentiment Tracking Study, Feb. 2008 – Dec. 2011.
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Leading Indicator of Remodeling Activity Points
to Stronger Conditions in Second Half of the Year
Note: Historical data and LIRA weights are revised annually in July.
Source: Joint Center for Housing Studies of Harvard University.
Homeowner Improvements
Four-Quarter Moving Totals
Billions of $
Four-Quarter Moving
Rate of Change
$120.1
$118.3
$115.7
$111.8 $112.0
$113.4
$114.5
$112.9
$111.6$110.8
$114.2 $113.8
$112.4
$108.1
$110.2
$113.6
-13.6%
-10.5%
-8.0% -7.6%-6.7%
-4.2%
-1.1%
1.0%
-0.4%
-2.2%
-0.2%0.8% 0.8%
-2.5%-3.5%
-0.2%
-20%
-15%
-10%
-5%
0%
5%
10%
$100
$105
$110
$115
$120
$125
4 2009-1 2 3 4 2010-1 2 3 4 2011-1 2 3 4 2012-1 2 3
US Census Bureau LIRA
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Challenges and Opportunities Facing the
Remodeling Industry
1. Shifting attitudes toward homeownership and home investments
among younger households.
2. Leveraging key growth niches in the industry: sustainable
remodeling and rehabbing distressed properties.
3. Serving the home improvement needs of an aging population.
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Reasons to Own a Home Often Have Nothing to
Do With Financial Aspects
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Encourages more engaged citizenship
Provides a symbol of success*
Can borrow against equity
Provides tax benefits
Can live in community with same values
Can live in a convenient location*
Provides a retirement investment
Can have a nicer home*
Can build up wealth
Provides good financial opportunity*
Renting is bad investment
Have control over living space
Can have more space for family*
Provides a safe place to live
Provides good place to raise children
Share of Survey Respondents
Major ReasonMinor Reason
Source: Fannie Mae, National Housing Survey, pooled data from January 2010 through August 2011 (data on reasons
marked with an asterisk (*) were first collected in June 2010).
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Average percent of cost recovered by project type
87%
99%
88%84%
89%
82%
71%66% 66%
63%61% 61%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Window / Door Siding Kitchen Roofing Bathroom Add / Alter / Create Room
Percent of Cost Recovered, 2004-05 Percent of Cost Recovered, 2010-11
Source: JCHS tabulations of Hanley Wood Remodeling magazine’s 2004-05 and 2010-11 Cost vs. Value Reports.
Cost Recovery for Remodeling Projects Has
Dropped Sharply in Recent Years
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Share of projects (on a dollar basis) over the past year in which firm installed energy efficient
and environmentally sustainable products, average across all respondents
25.8%25.5%
29.0%28.4% 28.7%
24.9%
22%
23%
24%
25%
26%
27%
28%
29%
30%
2009:Q1 2009:Q3 2010:Q1 2010:Q3 2011:Q1 2011:Q3Note: Prior to 2011, the survey asked “Over the past year, for about what share of your projects (on a dollar basis) was energy efficiency and
environmental sustainability specifically mentioned as a project goal?”
Source: JCHS National Green Remodeling Surveys, 2009-2011.
Under Stimulus Program, Growing Share of
Contractors Were Working on Green Projects
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Cost, Uncertain Savings Key Reasons Green
Projects Not Undertaken
Share of firms citing reasons why clients decided not to undertake “green” projects even though
they showed interest, average across all respondents (Multiple responses accepted)
Source: JCHS National Green Remodeling Survey, Q3 2011.
77.2%
49.8%
38.2%
29.6%
18.4%
4.5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Higher cost ofthe product(s)
Uncertainty ofcost savings
Higher costof installation
Concern aboutperformance and
reliability
Higher cost oflifecycle servicing/maintenance of the
product(s)
Other
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Fannie Mae Spent Almost $600 Million Fixing Up
Foreclosed Properties Last Year
2010 2011
Foreclosed Homes Sold 185,700 256,400
Number Homes Sold w/ Repairs 87,000 92,400
Avg. Repair Spending on Homes Sold $5,600 $6,100
Total Spending on Homes Sold ($ Millions) $487.2 $559.8
19
Fannie Mae Foreclosed Property and Repair Spending Statistics
Notes: 2011 figures based on 2011 Q1 through Q3 data. Q4 is estimated based on the average values of the previous three quarters.
Source: Fannie Mae Quarterly Report 2011 Q3 and Mission Report 2010; Fannie Mae tabulations of repair spending data.
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Household Growth (millions)
0.8
-2.3
3.7
6.9
1.7 1.5
-4
-2
0
2
4
6
8
Under 35 35-44 45-54 55-64 65-74 75+
2000-2010 growth: 12.2 million
Age of head of household
Last Decade, Household Growth Dominated By
Households Traditionally Active in Remodeling
Source: Joint Center tabulations of U.S. Census Bureau, 1999-2011 Current Population Surveys.
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Household Growth (millions)
0.8
-2.3
3.7
6.9
1.7 1.50.9 0.7
-2.3
3.7
6.5
2.2
-4
-2
0
2
4
6
8
Under 35 35-44 45-54 55-64 65-74 75+
2000-2010 growth (12.2 million)
2010-2020 projections (11.8 million)
This Coming Decade, Household Growth Shifts to
Active Retirees
Source: Joint Center tabulations of U.S. Census Bureau, 1999-2011 Current Population Surveys, and Joint Center for Housing Studies modification of
U.S. Census Bureau population projections that reduces its baseline immigration assumptions by half.