Residential remodeling holds strong through first half of 2002

The nation's home and rental property owners continued to upgrade their properties at a stable and healthy clip in this year's second quarter, with no letup from the first quarter's brisk pace of activity, according to the National Association of Home Builders' recently released Remodeling Market Index.

However, the index also showed that remodelers in some markets are reining in expectations for the coming months. The RMI is made up of two related indices, one that measures current market conditions and another that measures future market expectations.

The RMI for current conditions in the remodeling market held steadfast at 52.7 for a second consecutive quarter in the period running from April through June of 2002. This level represents a seven-point recovery from a slowdown that occurred in residential remodeling last fall, and brings the RMI within three points of its solid 55 reading during last year's first half.

"Continuing gains in home values and historically low interest rates are two strong incentives that are encouraging many homeowners to remodel," said Bill Owens, CGR, a remodeler from Columbus, Ohio, and chairman of the NAHB Remodelors Council.

"Housing has outperformed most other investments, especially in the last several years, making remodeling an even more popular way for families to add comfort and value to their homes," Owens said.

The RMI for current conditions is based on responses from professional remodelers to questions regarding demand for major additions and alterations ($25,000 or more), for minor additions and alterations (less than $25,000) and for maintenance and repairs. These market components received scores of 49.4, 53.4 and 55.1, respectively, virtually unchanged from the first quarter. Any index over 50 indicates that more remodelers view market conditions as favorable than unfavorable.

In spite of the market's stability in the year to date, remodelers have apparently tempered their expectations for business prospects in coming months. The RMI index gauging future market expectations fell by just over two points to 52.2 in the second quarter, with remodelers in the South and West revising their expectations downward from the first quarter by the most significant margins. Those in the Northeast were only slightly less optimistic than they had been, while Midwest remodelers were more upbeat, posting a modest gain in future expectations.

The future expectations index is derived from remodelers' responses to questions regarding the volume of calls for bids, the amount of work committed for the next three months, the current backlog of remodeling jobs and the number of appointments for job proposals. The first three of these components declined in the second quarter to levels marginally below 50, while the component gauging backlogs rose to 58.1.

Remodelers surveyed for the latest RMI were also asked to comment on specific aspects of remodeling, including in-house design services, sources of customer financing and cost components for different types of remodeling projects. Of the respondents, 72 percent indicated that they offer in-house design services. About 63 percent of those surveyed said they employ general designers to perform such services, followed by interior designers (17 percent), certified kitchen designers (14 percent) and architects (13 percent). Of the 28 percent of companies that did not offer in-house design services, 51 percent indicated they would be interested in working with a supplier who offers them.

Addressing the issue of payment, nearly half of the respondents said their clients paid with cash. A substantial proportion (40 percent) pointed to refinancings either second mortgages or equity lines of credit as their clients' source of remodeling funds. Just 9 percent cited home improvement loans.

Information for the second quarter 2002 Remodeling Market Index was compiled by the NAHB Economics Group from 570 member firms responding to the survey.