It’s National Home Remodeling Month—Have You Seen These Posts?

May 30, 2014

May is National Home Remodeling Month, and Eye on Housing recognized the occasion with a series of posts on home remodeling.  As the month draws to a close, we provide a list of those posts for anyone who may have missed them.

Baths Edge Kitchens for Most Common Remodeling Project in 2013   May 1, 2014

Number 1 Reason to Remodel: Simple Desire for New Amenities  May 7, 2014

$100,000 in Remodeling=Nine Tenths of a Full-Time Job   May 12, 2014

Benefits of Hiring a Professional Remodeler   May 13, 2014

Remodelers’ Customers Like Quality, Professional Designations   May 19, 2014

Efficient Windows Top List of Green Products Used by Remodelers   May 22, 2014

Remodeling by Zip Code: NAHB Releases 2014 Projections   May 26, 2014

Also, shortly before the month started, NAHB’s quarterly post on the Remodeling Market Index appeared as usual.

And don’t forget that an up-to-date chart and discussion on the amount being spent to improve owner-occupied housing appears every month as part of NAHB’s post on Construction Spending.

Finally, beyond the blog, NAHB’s main web site contains a number of National Home Remodeling Month Promotional Materials.


Efficient Windows Top List of Green Products Used by Remodelers

May 22, 2014

Energy efficient windows emerged as the leading green product among remodelers responding to NAHB’s Remodeling Market Index (RMI) survey for the first quarter of 2014, as nearly 9 out of 10 remodelers surveyed said they’d commonly used low-e windows during the past year.  Next on the list were high efficiency HVAC systems and programmable thermostats at 70 percent each, closely followed by ENERGY STAR appliances at 69 percent.

Green Remod

Although the features at the top of the list all involve energy eficiency, the term “green” is usually defined more broadly than that.  Moisture control, for example, is classified as green here, because it results in some components of the home needing to be replaced less often, reducing environmental impacts associated with manufacturing, transporting and installing those components over time. The list of 23 green products and practices used in the RMI survey is based on the major sections of the National Green Building Standard (which can and should be applied to remodeling as well as new construction).

Given the difference in cost, it’s perhaps surprising that use of program-mable thermostats is no more common than use of high efficiency HVAC among remodelers.  Anecdotally, several NAHB members have reported that a small but discernible share of their customers tend to resist devices that require programming.  A similar result was found in a survey on green products and practices used by single-family builders.

It’s also interesting that, across the two surveys, the same four green features appear at the top of the list and in the same order for both remodelers and builders.  The remodelers’ percentages tend to be a little lower, but this is natural, because not every remodeling project involves every home component. High efficiency HVAC systems, for example (the second ranked green feature for both builders and remodelers) are commonly used by 90 percent of builders, compared to 70 percent of remodelers.  But remodelers who specialized in projects like replacing windows or building decks in 2013 may have seldom if ever needed to install HVAC systems, while builders of new homes would have, at some point, dealt with every aspect of HVAC.


$100,000 in Remodeling=Nine Tenths of a Full-Time Job

May 12, 2014

In addition to benefitting those who live in remodeled homes, remodeling also has the ability to stimulate the U.S. economy. The latest estimates released by NAHB show that spending $100,000 on remodeling generates about $48,000 in wages and salaries in the U.S., which translates to .89 of a job measured in full-time equivalents (enough work to keep one worker employed for a year).

Much like the impacts of new construction, a substantial share of the wages and salaries goes to construction laborers—those who actually install cabinets, replace windows, renovate bathrooms, etc. But the effects are broader. Every $100,000 in remodeling also supports one tenth of a full-time job in firms that manufacture building products, slightly more than that in firms that transport or store or sell those products, and about half that in businesses that supply design, accounting and other professional services to remodelers and their customers.Remod Jobs In addition to wages and jobs, it can also be worthwhile to look at profits generated for business proprietors. Many remodelers and especially their subcontractors are relatively small businesses and self-employed, so in the technical sense they don’t have jobs or earn wages, although that’s the way casual observers no doubt think of them. In the construction industry, the roughly $13,000 in profit that $100,000 in remodeling generates for mostly small businesses proprietors is more than 40 percent as large as the $30,000 generated in wages and salaries.

The wages and profits earned in the course of remodeling are subject to a variety of taxes and fees. The national impacts of $100,000 spent on remodeling also include $21,844 in federal taxes and $7,935 in fees and taxes imposed by state and local governments, for a total of $29,799 in revenue for governments at all levels.Remod TaxesThe government revenue includes a permit fee equal to 1.25% the cost of the remodeling project, the percentage based on conversations between NAHB’s Economics and Housing Policy staff and NAHB Remodelers. For other assumptions and more details about the methodology used to derive NAHB’s national impact of remodeling estimates, please consult the full report, published online as a Special Study in HousingEconomics.com.


Jobs Created in the U.S. When a Home is Built

May 2, 2014

In an article published the first day of this month, NAHB released new estimates of the impact that building single-family and multifamily homes has on the U.S. economy. The new estimates show that building an average single-family home generates 2.97 jobs, measured in full-time equivalents (enough work to keep one worker employed for a year).

A substantial share of this is employment for construction workers. But also included is employment in firms that manufacture building products, transport and sell products, and provide professional services to home builders and buyers (e.g., architects and real estate agents). A breakdown by industry is shown below, along with the wages and business profits generated in the process.Single-familyWages and profits are subject to a variety of taxes and fees. The national impacts of building an average single-family home include $74,354 in federal taxes and $36,603 in state and local fees and taxes, for a total of $110,957 in revenue for governments at all levels.

The article also shows equivalent estimates for building an average rental apartment, including 1.13 (full-time equivalent) jobs, with a breakdown by industry as shown below.MultifamilyEstimates of wages and jobs garner the most attention, but in industries like construction and real estate it can also be worthwhile to look at profits generated for business proprietors. Included in this category are many construction subcontractors and real estate brokers with relatively modest incomes, who are organized as independent contractors and therefore not technically counted as having jobs—although casual observers no doubt tend to think of them that way.

The impacts of building an average rental apartment include $28,375 in federal taxes and $14,008 in state and local fees and taxes, for a total of $42,383 in revenue for governments at all levels. For more details and assumptions used to produce the above estimates, consult the full article.

And keep in mind that these are national estimates, designed for use when the impacts on suppliers of goods and services across the country are of interest. Avoid trying to use national estimates to say something about impacts at the state or local level.  For that, keep referring to NAHB’s Local Economic Impact web page.


Young Adults Living with Parents Up Sharply

February 4, 2014

New NAHB Economics research shows that the share of young adults ages 18 to 34 living with parents or parents-in-law increased sharply in the late 2000s. According to the most recent American Community Survey (ACS), one in three young adults ages 18 to 34, or more than 24 million, lived in homes of their parents or parents-in-law in 2012. By comparison, the 1990 and 2000 Censuses reported that only one in four young adults ages 18 to 34 lived with parents at that time.

The NAHB analysis shows that the biggest shift in the preferences of young adults to live with parents happened after 2005. This is particularly true for older young adults, ages 25 to 34, whose share living with parents was fluctuating around 12 percent from 1990 through 2005 and then quickly rose to exceed 19 percent in 2012 (see figure below). The younger cohort, ages 18 to 24, was more likely to live with parents in 1990, when more than half of these adults lived with parents, than in the early 2000s. However, by 2006 this share exceeded 50 percent again and grew to more than 57 percent in 2012.

YA_wp

Rising college enrollment among younger adults ages 18 to 24 helps explain their increased preferences for not leaving parental homes. The majority of adults in this age group, 52 percent, attended school or college in 2012, compared to 45 percent in 2000 and 43 percent in 1990. College attendance plays a less important role in the decision of older adults, ages 25 to 34, to stay at parents’ home. Less than 14 percent of adults in this older cohort were still in college or school in 2012, the comparable share in 1990 and 2000 was just slightly below, close to 12 percent.

For older, more experienced and better educated adults ages 25 to 34, the ability to find stable, higher-paying jobs plays an increasing role. As unemployment rates kept increasing in the late 2000s so did the shares of young adults living with parents. In 2000, the shares of unemployed in this age group were 7 percent among young adults living with parents and 4 percent among those living independently. By 2012, these shares reached 14 percent among adults living with parents and 6 percent among same age adults living independently.

The NAHB report also analyzes state unemployment rates and finds that, on average, states with larger increases in unemployment rates among young adults registered larger gains in percent of young adults living with parents. Even though unemployment rates started to decline in most states in 2011, shares of young adults living with parents remain stubbornly high and even increased in some states, suggesting that it takes longer for young adults to overcome the overall sense of economic instability, gain confidence and financial independence before leaving parents’ homes. This is particularly true for states hardest hit by the housing boom and bust, such as California and Florida, where percent of young adults living with parents continued to rise through 2012 despite improving job markets.

Young_adults

As of 2012, three Northeast states – New Jersey, Connecticut, and New York – register the nation’s highest shares of young adults ages 18 to 34 living with parents or parents-in-law – 45, 42 and 41 percent, respectively (see the map above). California and Florida – two of the states hardest hit by the housing boom and bust – follow with their shares just slightly under 40 percent. At the opposite end of the spectrum are the District of Columbia known for its relatively stable job market and North Dakota known for its oil booming economy – both registering shares under 20 percent.

Young adults ages 25 to 34 traditionally represent about half of all first-time home buyers. Their delayed willingness and ability to leave parental homes and strike out on their own undoubtedly contributed to suppressing housing demand further during the Great Recession. Declining shares of young adults living with parents in some states – Rhode Island, Montana, Wyoming, Maine, Delaware and New Mexico among others – could be one of the early signs that pent-up housing demand may finally start turning into realized housing demand.


Builders Have Eased Use of Sales Incentives

November 4, 2013

One way many builders choose to bolster sales and/or limit cancellations is by providing incentives that sweeten the deal for home buyers.  The popularity of these incentives, however, is very much tied to the cycles of the housing industry.  A survey of NAHB’s builder members found that 36 percent are not offering any kind of special incentives in October 2013, a share that is 2.5 times larger than it was in December 2008 (14 percent) during the housing bust, but is closer to the 42 percent who offered no sales incentives in September 2005 in the midst of the housing boom (Figure 1).  The incentives questions are appended to the monthly survey that produces the NAHB/Wells Fargo Housing Market Index.

Offering options or upgrades at no or reduced costs is generally one of the most popular ways builders attract buyers.  In the latest survey, 37 percent of builders said they are currently offering such options, essentially the same share as in 2005 (35 percent), but significantly lower than the 67 percent who offered them in 2008.

Another way builders incentivize their prospective buyers is by offering to pay closing costs or fees.  Similar to offers of free or reduced cost options, the use of this incentive has eased to 2005 levels.  In the recent survey, 27 percent of builders report paying closing costs for their buyers, less than half the 59 percent who did so in 2008, and more along the 26 percent using it as an incentive in 2005.

Figure 1. Popular incentives used by builders to bolster sales and/or limit cancellations – History
(Percent of Respondents)

Graphs for Incentives Blog1

Discounting home prices or reducing margins, meanwhile, is still being done by 32 percent of builders to bolster sales.  Although this is a larger share than in 2005 (19 percent), it is nowhere near the 72 percent who were lowering prices at the end of 2008.  The 2005 survey did not ask builders if they were helping buyers sell their existing homes, but it became common enough to make it on the survey by December 2008 – when 29 percent of builders reported doing it.  By 2013, only 15 percent are still helping sell the buyer’s existing home.

Among those builders not currently using any special sales incentives, 37 percent indicate the reason for not doing so is because they “don’t advertise – only build custom homes and rely on word of mouth,” another 35 percent explain it is because the “market is now strong enough and no incentives are needed,” while 27 percent say it is because they “cannot afford to offer incentives due to rising construction costs” (Figure 2).

Figure 2. If not using special incentives, why not?
(Percent of Respondents)Graphs for Incentives Blog2

It remains to be seen if the use of these incentives continues on a downward trend or if their use reemerges once again.  The strength and pace of the housing recovery will determine it.  The full report on the survey about use of incentives is available here.


The Ripple Effect of Home Buying

October 9, 2013

Using the Consumer Expenditure Survey (CES) data from the Bureau of Labor Statistics (BLS), NAHB Economics research shows that a home purchase triggers additional spending on appliances, furnishings, and remodeling. Such spending typically exceeds that of non-moving home owners and persists for two years after moving.

The NAHB analysis compares spending behavior among three groups of single-family detached home owners: buyers of new homes, buyers of existing homes and non-moving owners. During the first two years after closing on the house home buyers tend to spend on appliances, furnishings and property alterations considerably more compared to non-moving owners. However, home buyers tend to be larger households with children, and on average wealthier, with higher levels of education and concentrated in urban areas. Any of these factors could potentially explain higher spending on appliances, furnishings and remodeling by home buyers. Thus, the NAHB analysis controls for the impact of household characteristics on expenditures, and, nevertheless, finds that a home purchase alters the spending behavior of homeowners and that otherwise similar homeowners spend more across all three categories compared to non-moving owners during the first two years after moving. Ripple_blog1

Looking at spending patterns of new home buyers and identical households that do not move, the differences are largest on furnishings. A typical new home buyer that buys a new home is estimated to spend in excess of $3,000 more on furnishings than an identical household that stays put in a house they already own. The elevated level of spending persists into the second year as new home buyers spend additional $2,000 over their typical budget on furnishings.

Similarly, moving into a new home triggers higher levels of spending on appliances. A typical new home buyer that moves into a new home is estimated to spend $1,005 more on appliances during the first year compared to a non-moving owner. The difference shrinks to $348 during the second year and goes away after that.

In the case of property repairs and alterations the differences are smallest, $740, and last only one year, which is not surprising considering that most households would not want to spend years in a house with ongoing remodeling projects.

Buying an older home also triggers additional spending. The typical buyer of an existing home tends to spend close to $4,000 more on remodeling, furnishings, and appliances compared to otherwise identical homeowners that do not move. However, in case of buying an older home, most of this extra spending goes to remodeling projects, more than $2,000, and occurs during the first year after closing on the house. Only the additional spending on furnishings tends to persist beyond the first year.

Ripple_blog2

The statistical analysis further shows that this higher level of spending on furnishings, appliances and property alterations is not paid by cutting spending on other items, such as entertainment, transportations, travel, food at home, restaurants meals, etc. This confirms that home buying indeed generates a wave of additional spending and activity not accounted for in the purchase price of the home alone.

In summary, the NAHB analysis shows that during the first two years after closing on the house a typical buyer of a new single-family detached home tends to spend on average $7,400 more than a similar home owner who does not move, including $4,900 in the first year after purchase.  Likewise, a buyer of an existing single-family detached home tends to spend about $4,000 more than a similar non-moving home owner, including $3,600 during the first year. The overall ripple effect of home buying does not stop here, as producers of appliances, furnishings and remodelers spend their additional income paid by home buyers and trigger further waves of economic activity.