Remodeling Slows in the Second Quarter

Remodeling Slows in the Second Quarter

by Robert Dietz

The National Association of Home Builders Remodeling Market Index(RMI) dipped to 43.9 in the second quarter of 2011 from the 46.5 posted in the first quarter of the year.

Remodeling activity slowed for the same reasons new construction stagnated in recent months; namely a sluggish economy, lack of consumer confidence, and a strict lending environment. And as we noted last quarter, the popular section 25C remodeling tax credit was significantly weakened for 2011, likely leading to decreased demand for energy-efficient upgrades to existing homes.

Nonetheless, the current reading is the second highest RMI in nearly four years, topped only by the first quarter of 2011.

And despite the slowdown from previous suggestions of sector growth, total spending on remodeling related improvements remain the largest component of overall construction spending. Such spending is also closely connected to levels of existing home sales.

The RMI has two components, measuring current and future remodeling activity.  In the second quarter of 2011, current market conditions fell to 44.8 from 46.1 the previous quarter. And consistent with other indicators of future remodeling expenditures, the future activity component dropped to 43.0 from 46.8 in the first quarter of the year.

The RMI is based on a quarterly survey of professional remodelers, whose answers to a series of questions were assigned numerical values to calculate two separate indexes. The first index gauges current market conditions and is based on remodelers’ reports of major and minor additions and alterations, plus maintenance work and repairs, on both owner- and renter-occupied dwellings. The second index summarizes indicators of future remodeling activity  and is based on remodelers’ responses to questions about  calls for bids, amount of work committed for  next three months, job backlogs and appointments for proposals.

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