The entire home improvement industry in the United States is suffering from the same downturn that has struck the housing industry, though to a less severe extent. Like the housing industry, the remodeling sector grew at an unsustainable rate over the past decade, driven by high-end discretionary projects. According to a recent study by Harvard University’s Joint Center for Housing Studies, “The Remodeling Market in Transition,” the remodeling industry is about to experience an evolutionary shift, driven by changing home improvement demands.
Due to free-falling prices, many homeowners now have little to no equity in their homes, cutting off one major source of financing for improvement projects. And the free fall is expected to continue through 2009, according to Moody’s Economy.com. Affected homeowners are unlikely to take on significant remodeling projects until prices stabilize, and even those who have enough equity in their homes may not meet the more stringent lending standards in place, the report indicates. Also, owners in danger of foreclosing are not likely to make home improvements. Those homeowners who are able to finance improvements will focus on maintaining their homes’ structural integrity and stepping up energy efficiency to save on operating costs.
Once the economic turnaround begins, new remodeling growth opportunities will replace those that were important in the past decade, according to the report. Rehabilitating neglected or damaged foreclosure properties will be one area of growth, and improvement spending in areas with high foreclosure rates may resume quickly when markets begin to recover. There also will be three key market segments that will help offset remaining drag from the weak housing market, the report says:
Immigrant homeowners, who account for more than 10 percent of home improvement spending and represent a growing share of new households;
Rental housing stock, which has a median age of 36 years, largely has been neglected, and is in dire need of improvements. Increasing rental demand will necessitate upgrades to units;
Homeowners interested in green remodeling to improve their homes’ energy efficiency, quality, durability, environmental performance, health or safety, and disaster survival. Nearly 40 percent of existing stock is comprised of houses built before 1970. With nearly 130 million existing homes in the U.S., all of which will require some sort of ongoing maintenance and improvement, the remodeling industry has a solid future. It is inevitable that during this challenging economy some businesses will fail, but the remodeling sector as a whole will emerge from the current crisis stronger than ever, the report predicts.
For complete details of “The Remodeling Market in Transition,” download the report.
