Remodeling by Zip Code: NAHB Releases 2014 Projections

May 26, 2014

NAHB just released new estimates of spending on improvements to owner-occupied housing by zip code.  The estimates are based on a model relating improvement spending to five key variables (number of homes in the area, the share built in the ’60s, share built in the ’70s, owners’ average income and level of education), projected to calendar year 2014.  As before, the estimates show total spending on improvements, as well as spending per home, in each zip code.

On average, total spending on improvements in a zip code is projected to be about $5.1 million in 2014.  The top 5 total-spending zip codes are all in Maryland, Texas, or Illinois.  Each of these top 5 zips contains at least 15,000 owner-occupied homes and home owners who average at least $145,000 in income and are 60 percent or more college educated.  Most of these top 5 zips don’t have an unusually large share of homes in the key vintage for remodeling (homes built from 1960 to 1979), except for the zip at the very top of the list—#20854 in Maryland, a close-in suburb of Washington DC.  20854 is the only zip where over $60 million in spending on improvements is projected for 2014, and over half the owner-occupied homes in that zip were built 1960-1979.

The map below illustrates improvement spending per owner-occupied home.Remodel_zecta14

In the average zip code, improvement spending per home is just under $1,600.  The top two zip codes by this measure are the same as they were in 2013: #94528 (in a suburb of San Francisco) and #10007 (in Manhattan).  These are the only two zips with projected spending per home of over $5,000 (even over $6,000 in 94528), although several others come fairly close.  This year, unlike last, a zip code in New Jersey cracked the top five—#07078, a suburb within commuting distance of New York City. Homeowners in the top 5 improvement-per-home zips are at least 92 percent college educated and have average incomes of at least $350,000. Nearly half the owner-occupied homes in top zip #94528 were built 1960-1979.

The improvement spending projections for 2014 are based on a statistical model developed by NAHB economists using data from the HUD/Census Bureau American Housing Survey and summary statistics for the Census Bureau’s approximation of zip-code areas from the American Community Survey. Members of NAHB Remodelers can log onto NAHB’s web site with their usernames and passwords and access improvement spending projections in more than 25,000 zip codes here. Projections aggregated to the state level are available to everyone, and are reproduced below:

State Remodeling 2014

Number 1 Reason to Remodel: Simple Desire for New Amenities

May 7, 2014

According to remodelers who answered special questions on NAHB’s Remodeling Market Index (RMI) survey for the 1st quarter of 2014, a simple “desire for better/newer amenities” ranked as the number one reason customers choose to remodel their homes. On a scale of 1 to 5 (where 1 indicates never or almost never, and 5 is very often), the average remodeler’s response was 4.3.

“Desire for better/newer amenities” edged out the second place “need to repair/replace old components” by one tenth of a point. These traditional market drivers were the only reasons to remodel with an average rating above 4.0. Another fairly traditional reason, “desire/need for more space” came in third at 3.7.

Reasons to remodel that are of special interest to particular stakeholders—like aging in place and energy efficiency—were further down the list, with average responses near the 3.0 center of the scale. Relatively low average ratings for increasing the home’s investment value or preparing it for a sale continue to support the idea that owners are more likely to remodel for themselves than for future owners. Getting a property ready for a distressed sale scored a particularly low 1.3 (very near the minimum possible 1.0).Remodeling Reasons 2013At the margin, of course, less common reasons to remodel can still fuel an increase in activity if they are on the rise. However, this is only the second time we’ve asked the “reasons to remodel” question on the RMI survey (the first being in the first quarter of 2012), and most of the answers on average changed very little in the intervening two years. Indeed, the average rating for 9 of the 12 categories changed by one tenth of a point or less.

One exception was an increase from 2.8 to 3.0 in the “desire to be able to age in place,” something many observers were probably expecting given the aging population. “Desire/need for more space” also increased two tenths of a point. “Desire for better/newer amenities” posted the largest gain, going from 4.0 to 4.3. A rise in remodeling projects motivated by desire for more space or better amenities is consistent with the general housing market recovery that many experts expect to continue.

This is the second item we’ve posted in May in recognition of National Home Remodeling Month. The first was on the most common types of remodeling projects.

Pending Home Sales Down but Stable

November 25, 2013

The Pending Home Sales Index (PHSI), a forward-looking indicator based on signed contracts, fell a slight 0.6% in October from an upwardly revised 102.7 in September. The October 2013 PHSI reported by the National Association of Realtors (NAR) was 1.6% lower than the same period a year ago.
Pending Home Sales October 2013

The October PHSI increased 2.8% in the Northeast and 1.2% in the Midwest; the PHSI fell 4.1% in the West and 0.8% in the South. Year-over-year, the October PHSI increased 8.1% in the Northeast and 3.2% in the Midwest; the PHSI fell 12.1% in the West and 1.5% in the South.

NAR reported that the October PHSI was at the lowest level since December 2012. It is worth noting that existing homes sales are reported on a contracts closed basis, so they reflect market conditions with a longer lag than pending sales. The 5.6% decrease in the September PHSI was consistent with the subsequent 3.2% decline in October existing home sales. After the brief surge in sales in the spring and summer as buyers reacted to the increase in mortgage rates, the government shutdown contributed to a dampening of sales. These new data suggest that after this brief period of fluctuation, the long-term trend of increasing sales will continue.

Over the long run, economic and housing data continue to describe a modest recovery for housing that will lead to higher levels of construction activity in the years ahead. While recent information illustrates that there will be ups and downs along the way, demographic growth and constrained housing inventory will support housing demand going forward.

Rates Decline Slightly on Loans to Buy New Homes

June 27, 2013

Reversing a two-month trend, interest rates on loans for new homes declined slightly in May, according to data released today by the Federal Housing Finance Agency  (FHFA).  The average contract rate on conventional loans for newly built homes dipped 11 basis points to 3.41 percent, the lowest it’s been since February.  Although initial fees and charges on the loans increased from 1.18 to 1.30 percent, the resulting effective rate (amortizing the initial fees) for loans on new homes also dipped 11 basis points, to 3.55 percent.

MIRS May 13 A

The average term on loans for new homes in May was 28.5 years—up half a year from April, but staying within the 28-29 year range that has prevailed since early 2012.  The average price of a new home purchased with a conventional loan in May was $395,300, and the average loan amount was $300,200.   Both the average price and loan amount were lower than in April, but still higher than they were in March.

MIRS May 13 B

The average loan amount declined by less than average price, so the average loan-to-price ratio on conventional mortgages for new homes increased from 76.4 percent in April to 77.9 percent in May.

This information is based on FHFA’s Monthly Interest Rate Survey (MIRS) of loans closed from May 25 to the end of the month.   Loan terms are typically established 30 to 45 days before closing.  For other caveats and limitations of the survey, see the technical note at the end of FHFA’s June 27 News Release.