The recovery of the housing sector has, for all intents and purposes, taken its time. In fact, the ambiguity of the entire rebound has some debating whether or not there is any ground being made up at all. Even experts familiar with the market have differing opinions as to the direction of the housing sector. While the general consensus is one of optimism, it is difficult to prove the positive trend when traction has yet to hold. One thing is certain, however: large improvements can be seen within the home improvement industry. According to the Joint Center for Housing Studies at Harvard University, the influx of remodeling projects may help the housing sector gain some of the traction it so desperately needs.
The Harvard study was quick to acknowledge that spending on home improvements could surpass previous highs this year. Even in the face of restricted new construction rates, the demand for remodeling is beginning to exceed expectations. It is particularly important to note, however, that the increase in remodeling interest is likely due to the rapid rate of appreciation. Those that were priced out of upgrading had to settle for remodeling their existing home. According to the study, even landlords have begun to make improvements on their property, as a means to warrant the high rental rates. At the very least, improving buy and hold properties can justify the record high rates we are currently seeing.
While not confirmed by a specific study, home improvement projects are likely the beneficiary of both increasing consumer confidence and an expanding economy. A stronger job market, in particular, has permitted more homeowners to take action. With economic indicators pointing up, homeowners are more comfortable making improvements to their property. Evidence of the recent home improvement splurge can be seen in discretionary spending. Between 2011 and 2013, home improvement expenses rose by nearly $6 billion. The impressive increase was the first of its kind since 2007.
Home improvement efforts, like any real estate market, are extremely localized. Subsequently, metros around the country and their surrounding suburbs have placed their own priority on home improvement projects. In other words, some cities demonstrate more of a propensity towards home improvement projects than others. Of course, home values will play a major role in deciding whether owners move up or remodel. Both Washington, D.C. and Boston homeowners spent an average of $5,000 a year on home improvements. That is probably because of the price of housing in these areas. However, Las Vegas homeowners, where homes are typically cheaper, spent approximately $1,700 a year on remodeling projects.
The study also confirmed a difference between metro area spending and that of the suburbs. Due largely in part to the higher salaries of metro residents, those living in the city spent 50% more on remodeling projects than their suburb counterparts. Likely the result of income differences as well, homeowners in D.C., Memphis, and Boston were more likely to higher a professional. In fact, professional contractor work accounted for 90% of the work done in these areas. Homeowners in Las Vegas and Houston, on the other hand, were more inclined to take the projects on themselves. That said; 22% of all remodeling expenses were on do-it-yourself projects.
The building industry itself is actually witnessing a shift from traditional projects. While recent trends pointed towards the remodeling of both kitchens and bathrooms, older populations are more inclined to personalize their property to their specifications. As a result, the building industry has had to establish new lines of growth. In particular, baby boomers have started to adapt their living quarters to meet their needs. Accessibility appears to be the most in-demand feature for this entire population, as mobility from room to room is becoming more important than ever. Builders have really noticed an increase in requests for age-appropriate features.
In addition, builders continue to see an increase in demand for green features. Younger generations like millennials are more concerned with the environment than in the past. Anything that can reduce a home’s carbon footprint is in demand. Fortunately for builders, there are several ways to do that: new windows, energy efficient appliances, fabricated flooring, solar energy and better water systems are just a few of the things millennials are looking for. These additions have persisted in keeping contractors busy and their sentiment up.
Quite surprisingly, homebuilder sentiment actually dropped. Despite the recent influx of remodeling projects, the index suggesting builder sentiment dropped one point. According to the National Association of Homebuilders (NAHB), homebuilder sentiment is now at 57. For comparisons, anything above 50 is still considered good, so the one point drop is nothing to get worried about. If anything, there should be a lot of confidence in the building industry as we head into 2015.
“Steady economic growth, rising consumer confidence and a growing labor market will help the housing market continue to move forward in 2015,” said the association’s Chief Economist David Crowe.