Mary Ellen Podmolik | Chicago Tribune | May 20, 2012
The weakest part of the housing industry is single-family home construction, but home remodelers are in line for an upbeat year.
After rising 3.5 percent last year, to $107.4billion, homeowner spending on remodeling projects is expected to increase 12 percent this year and an additional 8 percent next year, says a recent forecast by the National Association of Home Builders and Harvard University's Joint Center for Housing Studies.
That doesn't include spending by investors purchasing distressed properties and fixing them up either to resell or to turn into rental units. Add that in and the total spent was close to $300billion last year and is expected to increase.
Credit the anticipated spending to some of the same factors that have helped weigh down the housing market. The percentage of people who moved from one home to another in 2011, 11.6 percent, was at its lowest rate since the Census Bureau began tracking mobility in 1948. Because of declining home values, 26 percent of homeowners plan to stay in their homes at least 16 more years, and an additional 23 percent said they plan to stay put six to 10 years, according to a recent poll by the National Institute of the Remodeling Industry.
Also, homeowners in areas where the local housing market seems to have bottomed out may be more willing to invest in their properties again, taking on projects they deferred.
Consumers buying foreclosures or homes sold through short sales typically need to make improvements and repairs that last year translated into average spending of $7,300 during the first year of homeownership.
And finally, even homeowners with equity in their homes may decide that in the current market, trying to sell their home isn't worth the effort, so they'll tailor the home to their changing needs instead.
"The mix is going to change," said Kermit Baker, a senior research fellow at Harvard's Joint Center for Housing Studies. "It's not going to be driven by these upper-end projects. It's going to be driven by these smaller-scale activities and it's been deferred. There's a lot of folks who are not underwater or not that significantly underwater and aren't planning on moving anytime soon."
That's not good for would-be buyers who are waiting for choice inventory to come on the market. It's not good for homebuilders, either. But it's welcome news for remodeling professionals so long as homeowners have saved up enough for the projects or have the creditworthiness to borrow money.
Last year, the five most common remodeling jobs were bathrooms, kitchens, window and door replacement, repairing property damage and whole-house remodeling.
"Remodeling is (now) not driven by price appreciation or preparation for sale — by a lot of the things you'd normally thought of — but rather by simply good old-fashioned 'This is what I want. I want a place that is newer, has all the gizmos and is nicer to live in,'" said David Crowe, chief economist for the National Association of Home Builders. "It's a return to the real value of a home as a place that I will use rather than trying to gain appreciation."
Baker continues to believe that much of the remodeling industry's growth will come from changes made to homes to allow baby boomers to age in place. "That's going to be one of the really strong markets over the next decade," Baker said. "I'm really not sure the remodeling industry knows how to sell that population really well."
Lower rate and shorter terms: With interest rates on 30-year, fixed-rate mortgages that hovered under 4 percent, it's little wonder homeowners who refinanced their mortgages during the year's first quarter were eyeing more stable products and shorter loan terms.
According to Freddie Mac, 31 percent of borrowers who refinanced during 2012's first three months traded in their 30-year loans for 20-year, 15-year or shorter-term mortgages. Meanwhile, 68 percent of borrowers who had hybrid adjustable-rate mortgages refinanced by moving into fixed-rate mortgages, the highest share in a year. Mortgage refinancings accounted for 81 percent of mortgage applications during the quarter.