Improving America’s Housing 2011: A New Decade of Growth ... · Billions of dollars Sources: JCHS...

JOINT CENTER FOR HOUSING STUDIES

Graduate School of Design | Harvard Kennedy School

Harvard University

Copyright 2011

www.jchs.harvard.edu

Improving America’s Housing 2011:

A New Decade of Growth for Remodeling

Kermit BakerJoint Center for Housing Studies

2011 Remodeling Market Report January 14, 2010



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Copyright 2011


Report Topics

1. Remodeling through the past cycle

2. Evolving structure of the home improvement industry

3. Metropolitan remodeling trends

4. The outlook to 2015



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Even with the Recent Decline, the Remodeling Market is Nearly $300 Billion

108 121 136162 172

231

274

23241

4044

4857

49

52

54

149161

180

210229

280

326

286

0

50

100

150

200

250

300

350

1995 1997 1999 2001 2003 2005 2007 2009

Owner-Occupied Homes Rental Units

Billions of dollars

Sources: JCHS tabulations of the 1995-2009 American Housing Surveys (AHS); US Department of Commerce Survey of Expenditures for Residential Improvement and Repairs (C-50); and Estimating National Levels of Home Improvement and Repair Spending by Rental Property Owners by Abbe Will, JCHS Research Note N10-2, October 2010.



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Recent Remodeling Downturn is the Most Serious of the Past 25 Years

-20

-15

-10

-5

0

5

10

15

20

25

30

1986-4

1988-1

1989-2

1990-3

1991-4

1993-1

1994-2

1995-3

1996-4

1998-1

1999-2

2000-3

2001-4

2003-1

2004-2

2005-3

2006-4

2008-1

2009-2

2010-3

Recession

Annual change in homeowner improvement expenditures (Four-quarter moving averages, percent)

Notes: Rates of change for 1985-2007 were calculated using the C-50 series and 2008-2010 using the C-30 series. For methodology and greater explanation of historical remodeling cycles see Abbe Will, Understanding Remodeling Cycles, JCHS Working Paper W08-6, August 2008. Sources: JCHS tabulations of US Census Bureau, Residential Improvements and Repairs Statistics (C-50) and Value of Private Construction Put in Place (C-30), and National Bureau of Economic Research.



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Remodeling Spending Has Contributed a Growing Share of Residential Investment Since the Downturn

20

30

40

50

60

70

80

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010 (

e)

Improvement and repair expenditures as a share of total residential investment (Percent)

Notes: Total residential investment expenditures include the value of construction put in place for new single-family homes, multifamily homes, and improvements and repairs to owner-occupied and rental units.Sources: JCHS tabulations of the 1995-2009 AHS; US Census Bureau, C-50 and C-30 series; McGraw-Hill Construction, Commercial & Industrial Alterations; Bureau of Labor Statistics, Consumer Price Index; and the JCHS Leading Indicator of Remodeling Activity.



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Lower Income and Older Owners Have Cut Back the Least on Spending Since 2007

-5.8

-20.4

-17.6

-24.0

-26.8 -26.6

-23.2

-13.8

-0.7

-18.8

-30

-20

-10

0

Under

$40K

$40

- $80K

$80

- $120K

$120K and

Over

Under 35 34-44 45-54 55-64 65 and

Over

All Owners

Household Income Age of Householder

Notes: Household income and spending are in 2009 dollars.Source: JCHS tabulations of 2007-9 AHS.

Change in improvement spending (Percent), 2007-9



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Share of total spending by top 5% of owners (Percent)

Source: JCHS tabulations of the 1995-2009 AHS.

Spending Became More Concentrated During Periods of Strong Growth

45.2

52.8

51.0

54.7

56.8

60.6

56.7

52.1

30

35

40

45

50

55

60

65

1995 1997 1999 2001 2003 2005 2007 2009



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DIY share, 1995-2009 annual averages (Percent)


The DIY Share of Spending Is Higher for Discretionary than Replacement Projects

30.130.9

27.1

18.417.6

23.7 23.5

0

5

10

15

20

25

30

35

Kitchen Remodeling

Bath Remodeling Other Room Additions and

Alterations

Systems & Equipment

Replacements

Exterior Replacements

Interior Replacements

All

Discretionary Projects Replacement Projects



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Small Nonpayroll Firms Continue to Dominate the Industry

Self-Employed General

Contractors, 24

Self-Employed Special Trade

Contractors, 43

General Contractors with Payrolls, 12

Special Trade Contractors with

Payrolls, 21

Total Number of Remodeling Contractors = 652,000

Note: Self-employed figures do not include remodelers reporting less than $25,000 in gross receipts in 2007. Source: JCHS estimates using unpublished tabulations from the 2007 Economic Census of Construction and Nonemployer Statistics, US Census Bureau.

Share of contractors with a majority of revenue from home improvements in 2007 (Percent)



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During the Housing Boom, the Number of Self-Employed Remodelers Grew Substantially

Number of Remodelers Percent Change

2002 2007 2002-7

General Contractors

Payroll 82,900 77,900 -6.0

Self-Employed 127,200 156,700 23.2

Total General 210,100 234,600 11.7

Special Trade Contractors

Payroll 117, 200 139,500 19.0

Self-Employed 202,900 278,100 37.1

Total Special Trade

320,100 417,600 30.5

Total 530,200 652,200 23.0

Note: Includes self-employed remodeling contractors with annual revenues of at least $25,000. Source: JCHS estimates using unpublished tabulations from the 2002 and 2007 Economic Census of Construction and Nonemployer Statistics, US Census Bureau.



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Contractors Specializing in Exterior Replacements Fared Best During the Downturn

-25

-20

-15

-10

-5

0

5

10

15

2003 2004 2005 2006 2007 2008 2009

Design/Build Full-Service Exterior Replacements

Median annual change in remodeling revenue for top 500 remodelers (Percent)

Notes: Analysis includes remodelers reporting revenue in any two consecutive years and ranking in the top 400 in at least one of those years. Full-service remodelers include kitchen and bath specialists.Source: JCHS tabulations of Qualified Remodeler magazine’s Top 500 Remodelers.



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Failure Rates for Remodeling Firms Were High Even During the Market Upturn

36.3

53.6

42.6

25.4

20.2

14.7

0

10

20

30

40

50

60

All Start-upsUnder $250K $250-499K $500-999K $1M and Over

Estimated 2003 Receipts

2003 Establishments

Share of establishments in 2003 no longer operating in 2007 (Percent)

Notes: Failure rates were calculated by 2003 payroll categories, where under $250,000 in receipts corresponds to less than $50,000 in payroll; $1 million and over in receipts corresponds to more than $250,000 in payroll.Source: JCHS estimates using US Census Bureau tabulations of the Business Information Tracking Series.



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Industry Concentration Increased Through 2007

1.4

2.1

3.3

5.2

2.5

3.4

5.2

7.9

0

1

2

3

4

5

6

7

8

Top 4 Top 8 Top 20 Top 50

Remodeling Contractors

2002 2007

Share of industry receipts for largest remodeling contractors (Percent)

Source: JCHS estimates using unpublished tabulations from the 2002 and 2007 Economic Census of Construction, US Census Bureau.



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Top Remodeling Markets are Located Along the Coasts

Average annual homeowner spending, 2000-9 (2009 dollars)

Notes: Metros shown are the 35 largest by population for which AHS data are available. Spending figures are weighted by population, income, age of the housing stock, and structure types.Source: JCHS tabulations of the 2001-9 AHS.

High spending

Low spending



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Spending Cutbacks Were Especially Large in Markets with High Delinquencies

2.4 2.3

2.93.1

2.92.92.8

3.9

4.8

3.0

0

1

2

3

4

5

2001 2003 2005 2007 2009

Low Delinquency Rate Metros High Delinquency Rate Metros

Average annual homeowner spending (Thousands of 2009 dollars)

Notes: Largest 35 metropolitan areas by population for which AHS data are available. Spending figures are weighted by population, income, age of the housing stock, and structure types. In low delinquency rate metros, less than 14% of 2006 and 2007 vintagemortgages were delinquent in 2009; in high delinquency rate metros, 14% or more were delinquent.Sources: JCHS tabulations of the 2001-9 AHS and First American CoreLogic, LoanPerformance data.



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Conditions in Several Metro Markets Point to a Rebound in Remodeling Activity

Ranking of metros by market conditions in 2009-10

Favorable conditions

Less favorable conditions

Notes: Favorable conditions are defined as higher house value appreciation, higher median household income, older housing stock, higher home values, and large share of upscale remodeling projects. All factors are weighted equally.Sources: JCHS tabulations of the 2009 AHS, 2009 ACS, and the Zillow.com Home Value Index.



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100

147

116

161

199

220

0

50

100

150

200

250

300

Not distressed Distressed Not distressed Distressed Not distressed Distressed

Index of average remodeling expenditures in the first year after purchase, 2010

Buyers of Distressed Properties Are Spending More on Remodeling

Notes: New distressed properties were either bought from a financial institution or from a builder or developer who “needed to sell the home as soon as possible.” Existing distressed properties were bought from a financial institution, purchased as a short sale, or had a loan in delinquency or in the foreclosure process.Source: JCHS tabulations of the 2010 HIRI Recent Home Buyers Survey.

New Homes Existing HomesBuilt 1990-2009

Existing HomesBuilt Before 1990



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Home Improvement Spending Declines Sharply After the Second Year of Ownership

6.2

2.4 2.5 2.7

1.9

2.5

0

1

2

3

4

5

6

7

Under 2 2-5 5-10 10-20 20 and

over

All

Years in Home

Average annual expenditures, 1997-2009 (Thousands of 2009 dollars)




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Since Peak of Housing Market in 2006, Out-Migration From Northeast and Older West Metros Has Slowed

Net domestic migration (Thousands)

Note: Of the 50 largest metropolitan areas in the country, these 10 had the largest increase in net domestic migration in 2009 from 2006 levels. New Orleans is not shown here because of the uncharacteristic migration caused by Hurricane Katrina.Source: US Census Bureau Population Estimates.

-300

-275

-250

-225

-200

-175

-150

-125

-100

-75

-50

-25

0

25N

ew

York

Los A

ngele

s

Washin

gto

n,

DC

San F

rancis

co

Mia

mi

Bosto

n

San D

iego

Chic

ago

San J

ose

Cle

vela

nd

2006 2009



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Immigrant Homeowners Remain an Important Market Segment

10.9 10.9

18.9

23.4

18.4

8.5

8.1

10.0

10.3

9.9

7

8

9

10

11

0

5

10

15

20

25

2001 2003 2005 2007 2009

spending

share

Expenditures(Billions of dollars)


Share of Total(Percent)



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Share of respondents (Percent)

Figure 5.5: More Remodelers Are Working on Energy-Related Projects

39

52

58

0

10

20

30

40

50

60

70

2009:3 2010:1 2010:3

Notes: Building envelope projects include insulation, windows, doors, and roofing. HVAC upgrades/replacements include heaters, furnaces, boilers, and air conditioners. Renewable energy systems includes solar, wind, geothermal, and fuel cell technologies.Source: JCHS National Green Remodeling Survey, 2009-10.

Building Envelope 97%

HVAC Upgrades /Replacements

41%

Renewable Energy Systems

19%



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Homeowner Improvement Spending Should Grow Steadily Over Next Five Years

3.9

7.3

-1.4

3.5

-2

-1

0

1

2

3

4

5

6

7

8

1995-2000 2000-2005 2005-2010 2010-2015

Notes: Home improvement spending levels used to calculated the compound annual growth rate are in 2010 dollars. Annual growth between 2010 and 2015 is calculated by applying the 1996-2000 growth rate in owner improvements by age, household type, and minority status in the AHS to JCHS household projectionsSources: JCHS tabulations of the 1995-2009 AHS; George S. Masnick, Daniel McCue, and Eric S. Belsky, Updated 2010-2020 Household and New Home Demand Projections, JCHS Working Paper W10-9, September 2010.

Compound Annual Growth Rate (Percent)



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New Report From the Remodeling Futures Program

Improving America’s Housing 2011:A New Decade of Growth for Remodeling

Released – January 13, 2011

Available on Joint Center Website – No Cost


Other reports and working papers also available on the website

http://www.jchs.harvard.edu/

Improving America’s Housing 2011: A New Decade of Growth ... · Billions of dollars Sources: JCHS...

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