While it would be premature to start popping champagne just yet, remodeling and replacement project activity improved slightly in Q2 2012, according to the latest release of the Residential Remodeling Index (RRI) by Hanley Wood. The seasonally adjusted second quarter national composite of the RRI registered an 80.87 score, a 0.3% improvement over the revised first quarter’s 80.63 result.
The quarter-to-quarter increase was the first increase in six quarters, which coincided with the energy-related tax credits expiring and the less-than-stellar performance by the housing sector and the general economy in 2011. However, now due in part to an uptick in housing numbers in many markets, remodeling and replacement activity is starting to increase and Hanley Wood is forecasting it to improve for many upcoming quarters.
2013 has the potential to be the best year for remodeling activity since 2006, according to Jonathan Smoke, executive director of Hanley Wood Market Intelligence in Washington D.C. “Momentum will be building over 2012 as we anticipate 4% growth in the number of projects nationally,” he says. “What is most encouraging is that the recovery in remodeling and replacement will be widespread—of the 366 largest markets in the country, the RRI forecast for 2013 is calling for growth in all but four markets.”
Signs of Life
The number of estimated remodeling and replacement projects for 2011 is just a little over 10 million, a 5% decline of the 10.5 million completed projects estimated for 2010. For 2012, however, Hanley Wood is predicting just over 10.1 million large, pro-worthy remodeling and replacement projects. For 2013 the news is even better as 10.5 million projects are projected.
“Housing is now showing signs of life with home prices rising and new construction activity picking up,” Smoke says. “This is causing consumer confidence in housing to improve and the improving activity is providing support to a weak but improving job market.”
However, one of the chief reasons for the increase in demand is simply the passage of time; the housing stock is aging and is ripe for improvement. “Major remodeling projects have been postponed for several years due to the housing downturn and the recession,” Smoke says. “And, the baby boom generation is rapidly approaching retirement and showing signs that they are eager to update their homes to make them more livable and enjoyable during their retirement years.”
About the Residential Remodeling Index: The RRI is a quarterly measure of the level of remodeling activity in 366 metropolitan statistical areas (MSA) in the U.S., with the national composite reflecting the national level of activity. “Activity” includes home improvement and replacement projects, but does not include maintenance or projects of less than $500. The seasonally adjusted index shows the relative level of activity in the geography specified (MSA or national composite) compared to 2007 (the baseline year). A number above 100 indicates a level of remodeling activity higher than the level of activity at the beginning of 2007, which was the peak of remodeling activity in the prior decade. The index is produced through a statistical model that leverages detailed data on remodeling activity, including household level remodeling permits, and consumer reported remodeling and replacement projects. Quarterly historical results for the national composite and for each of the 366 Metropolitan Statistical Areas in the U.S. are available back to 2004.