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Freelite Blog

March 4, 2014

Slower growth expected in country’s Residential Remodeling Index this year

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Economic conditions in 211 of the nation’s 381 markets will be more favorable to remodeling this year than even at the nation’s old peak of early 2007, Hanley Wood’s Metrostudy unit forecast today. That’s more than double the forecast for 2013’s fourth quarter, capping a year that “marked a clear and substantial move towards recovery in the home improvement sector,” the sister company to REMODELING concluded.

But while more than half of the markets now are doing better than ever, and only two of 381 markets are expected to decline this year, Metrostudy also cautioned that the pace of improvement is slowing. Its national Residential Remodeling Index (RRI) climbed 9% in 2013 from the year earlier, while the number of remodeler-worthy projects (generally, jobs worth at least $500), climbed by 8.4% to total just under 11 million. For 2014, Metrostudy forecasts the national RRI will rise just 2.8% and the number of projects will increase by 4.5% to reach just under 11.5 million.

The  RRI is based on a type of mathematical formula weighing six economic variables that, over the years, have shown a strong correlation with remodeling activity. Those six are: household median income, household growth, median existing home prices, unemployment, existing home sales, and the number of housing permits issued. When those numbers go up, remodelers get busy.

The national RRI uses the first quarter of 2007 as its baseline of 100 because that spring represented the most recent peak period for remodeling nationwide. Since then, some markets–particularly places that weren’t so hot in early 2007, such as North Dakota–have far exceeded that number. In all 100 of the best markets, the forecast is to hit at least 110% of the 2007 mark. In contrast, the worst markets–particularly the once red-hot parts of California, Florida, and Nevada–still struggle to have an economic outlook even two-thirds as good as they once did.

The nation as a whole still trails where it was seven years ago. The RRI, stood at 94.62 in 2013’s fourth quarter and is forecast to reach 97.25 by the end of this year. It won’t top 100 until the latter half of 2015,Metrostudy predicted.

Jonathan Smoke, chief economist at Metrostudy, expects three consumer groups—the elite in general, the active adult elite, and Americans focused on family life—to be the best groups to pursue for remodeling work this year. They occupy 20% of all homes but are responsible for 35% of all remodeling and well over half of all projects requiring a permit, he says.

“2013 turned out to be a banner year for remodeling and replacement due to strong housing market fundamentals, resurging consumer confidence, and pent-up demand,” Smoke said.  “We are forecasting the market to continue to show gains over the next several years. I am confident that the total level of remodeling and replacement activity will be fully recovered nationally by the end of 2015, and we have a chance at reaching that milestone in 2014 if the economy picks up more steam.”

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