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.

Baths Edge Kitchens for Most Common Remodeling Project in 2013

May 1, 2014

May is National Home Remodeling Month. We lead off a series of posts in recognition of the occasion with results from NAHB’s quarterly Remodeling Market Index (RMI) survey showing that bathrooms remained the most common type of job performed by NAHB Remodelers in 2013.

Among remodelers responding to the 4th Quarter 2013 RMI survey, bathroom remodeling was cited as a common job during the year by 72 percent, followed closely by kitchen remodeling at 70 percent. Since the inception of the survey in 2001, bathrooms and kitchens have been jockeying for top spot on the most popular remodeling projects list. At first kitchen remodeling led the race by a few percentage points, but after 2009 bathroom remodeling edged into first place where it has remained through 2013.Remodeling Jobs in 2013Although other categories of remodeling trail kitchens and baths by a substantial margin, window and door replacements, whole house remodeling, and room additions are also relatively popular projects, cited as common jobs in 2013 by 35 to 40 percent of remodelers each. Repairing damage, handyman services and decks were cited as common by 25 to 29 percent.

In general, there have been few large changes in the percentages over the last two iterations of the common remodeling projects questions, but whole house remodeling has rebounded from a low point during the depths of the housing downturn.Whole House HistoryAfter spending most of the decade of the 2000s well above 40 percent, the share of remodelers citing whole house remodeling as a common project plummeted to 21 percent in the second quarter of 2010, before bouncing back up to 35 percent in the first quarter of 2012 and 39 percent in the latest survey. Although not back to its pre-2010 peak, the rising share of NAHB members reporting that a big ticket item like whole house remodeling has become common for them is a sign that the market has made some progress toward a recovery.

Weather Constrains Remodeling Market Index in the First Quarter

April 24, 2014

Against the backdrop of unusually severe winter weather, NAHB’s Remodeling Market Index (RMI) declined to 53 in the first quarter of 2014, from the historically high level of 57 in the two previous quarters. However, the RMI remains above the key break-even point of 50.  An RMI above 50 indicates that more remodelers report market activity is higher (compared to the prior quarter) than report it is lower.RMI 14Q1 chartThe overall RMI averages ratings of current remodeling activity with indicators of future remodeling activity.  In the first quarter of 2014, the index for current market conditions declined three points to 53.  The subindex for the current maintenance and repair component increased two points to 59, a historically high reading.

The index of indicators for future remodeling activity fell from 58 in the previous quarter to 52, but all four components remained at or above 50. Calls for bids was 52, the amount of work committed for the next three months was 50, the backlog of remodeling jobs was 55, and appointments for proposals was 52.

RMI 14Q1 table

Currently, factors like labor shortages and credit availability are constraining growth in residential remodeling and other segments of the housing industry. In the first months of 2014, activity was also affected by an uncommonly harsh winter. The two components of the RMI that declined the most in the first quarter, calls for bids and appointments for proposals, are the ones most likely to respond to weather conditions.

For more detail and a complete history of the RMI and its components, see NAHB’s RMI web page

Energy Tax Credits: Large Impacts After 2010 Rule Changes

March 21, 2014

In 2005, Congress established a number of energy-efficiency tax incentives related to housing. These policies include the tax code section 45L credit for the construction of energy-efficient homes, the 25C credit for retrofitting existing homes, and the 25D credit for the installation of power production property in new and existing homes.

Using earlier IRS data for tax year 2009, we previously examined who benefitted from the 25C and 25D credits, as well as how homeowners used the credits. Last year, we examined the 2010 data for these credits.

With the publication of the tax year 2011 IRS data for 25C and 25D, significant reductions in use are clearly seen due to the rule changes that occurred at the end of 2010.

For example, from 2009 through the end of 2010, the 25C credit for existing homes was available as a 30% credit and $1,500 limit. After the extension of the “tax extenders” legislation at the end of 2010, those rules were pared back and retained when the credit was extended again as part of the Fiscal Cliff deal. Among those rule changes, the credit was reduced to a 10% rate and a $500 lifetime cap was imposed. It is worth noting that this version of the credit, along with many other tax extenders, expired at the end of 2013.


The 2011 IRS data show significant declines in 25C use as a result of the 2010 changes. The largest impact came from energy-efficient windows, for which the total dollar volume of installed qualified property fell from about $7.8 billion to approximately $1.4 billion. Qualified furnace installations declined by more than $5 billion, reaching a 2011 total of about $180 million.

Tax credit qualified insulation installations fell by more than $1.5 billion but was the largest category in 2011 at a total of $1.87 billion. Roofing retrofits were second with a tally of $1.4 billion.

In total, more than $6 billion of qualified improvements were made in 2011 in connection with the 25C credit. These expenditures resulted in more than $750 million in tax credits for just shy of 3.5 million homeowners.



In contrast, tax credit use under section 25D of the code expanded in 2011 from 2010 levels. The 25D credit is for installation of qualified power production property in both new and existing homes. The credit is equal to 30% of expenditures, including certain labor costs and is claimed by the homeowner. Unlike the 25C credit, the 25D program remains in law and is scheduled to sunset at the end of 2016.

The most popular 25D investment in 2011 was the installation of residential solar panels. 25D qualified solar electric property investments totaled almost $1.5 billion in 2011 for more than 100,000 taxpayers. It is worth noting that these solar installations reflect credits claimed for electrical system integrated panels that provide power for the home, as well as panels used to power stand-alone property like attic fans.

The second largest category was geothermal heat pumps, with $1.2 billion of installations claimed by more than 70,000 homeowners. The geothermal category experienced the largest growth in 2011 in terms of tax credit claims, up almost $300 million in total installations over 2010 totals.

In total, for 2011 there were $3.03 billion of qualified power production investments yielding about $921 million in 25D credits.

Given the rising popularity of items like solar panels, builders are well advised to examine the 25D program for prospective homeowners. The 25D credit can be awarded in new construction by providing the eventual homeowner an itemized breakout of material and labor costs associated with qualified property installation, so that the homeowner can claim the credit on their income tax return. An IRS Q&A on 25D and 25C can be found here.

Wages in Home Building and Remodeling

February 12, 2014

Wages for most jobs in home building and remodeling typically exceed the median wage in the U.S., according to data from the Bureau of Labor Statistics Occupational Employment Statistics (OES) Survey.

In a previous analysis, we examined the kinds of jobs that exist in the residential construction sector.

Using the same 2012 BLS data, it is possible to track wages of employees in the industry (click the chart below for a more detailed view).  It should be noted that typical wages will vary greatly from area to area, so the following data are national medians – wages in your area may differ.

median wages_res construction_2012

The U.S. median annual wage in 2012 was $34,750. The chart above plots the medians for various occupations in the home building and remodeling sector (the single item above with no value did not have sufficient data). The OES survey defines employment as the number of workers who can be classified as full- or part-time employees. The following profile examines the Residential Building Construction industry group, which includes builders of for-sale and owner/contractor built single-family and multifamily housing, as well as residential remodelers.

The wage data presented in this post are for occupations within the home building and remodeling sector, as opposed to data for these occupations across all sectors of the economy. Annual wages are calculated, by the BLS, as the hourly wage paid on a 2,800 hour annual basis. Wages are measured on a gross pay basis, but certain bonuses and employer paid benefits are excluded.

The occupation with the highest wage in the industry is the legal profession, which has a median income of just a little more than $99,000. Managers, who constitute 9% of industry employment, had a median income of approximately $79,000 in 2012. Occupations with median wages in excess of the U.S. median represent approximately 80% of total employees.

median wages_construction occupation jobs_2012

Within the largest subsection of the industry (construction and extraction occupations – 64% of industry employment), a majority of the occupations again have median annual wages in excess of the U.S. median. The highest wage for this subsection is for construction supervisors, with an annual median wage of $56,500.

Carpenters, who make up the largest group (47% of the construction occupations and 30% of industry employment), had a median annual wage of $39,940 in 2012.  This is 15% higher than the U.S. median annual wage.

Jobs in Home Building and Remodeling

February 11, 2014

Home building is an industry dominated by small businesses around the nation. Data from the Bureau of Labor Statistics (BLS) reveal the many job categories within the industry and their relative concentrations.

Previous NAHB research has examined the geographic scope of the building industry, as well industry surveys that present a census of builders and associated businesses.

BLS data from the 2012 Occupational Employment Statistics (OES) Survey allow reporting the roles workers play in home building. The OES survey defines employment as the number of workers who can be classified as full- or part-time employees. The following profile examines the Residential Building Construction industry group, which includes builders of for-sale and owner/contractor built single-family and multifamily housing, as well as residential remodelers.

Home building jobs_2012

Management jobs constituted approximately 9% of jobs in the residential construction industry, for a total of more than 48,000 positions. Office and administrative support made up the second largest category, which at just under 80,000 jobs represented 14% of sector employment.  Sales staff and business/finance roles each made up about 4% of home building business jobs, each contributing approximately 24,000 jobs.

Other jobs in home building, generally representing about 6% in combination, include architects, lawyers, designers, building/grounds maintenance staff, security guards, drivers, and IT staff (chart above corrected from earlier version for which this share was incorrectly reported).

Not surprisingly, the largest share of home building/remodeling employment is concentrated in construction and extraction jobs. For 2012, more than 363,000 jobs were in such fields.  The following chart provides a breakdown of these jobs.

Home building construction jobs_2012

Carpenters make up almost half of construction/extraction jobs (47%), for a total of more than 171,000 jobs. The OES defines carpenters as workers who construct, erect, install, or repair structures made of wood. It also includes workers who install cabinets, drywall, siding, and insulation. Approximately 30% of carpenters nationwide are employed by the residential building construction sector.

Rounding out the construction segment of industry employment are construction laborers, worksite supervisors, brickmasons, stonemasons, carpet/tile installers, cement masons, equipment operators, drywall installers, electricians, glaziers, insulation workers, painters, plumbers, plasters, rebar workers, roofers, and sheet metal workers.

A follow-up post to this analysis examines wages for many of these industry jobs.

Most Remodeling Business Still Comes from Customer Referrals & Returns

February 3, 2014

Although relatively new ways of generating business—such as company web sites and online review services—tend to get a lot of attention, the best source of leads for remodelers are still the traditional ones, according to NAHB’s Remodeling Market Index (RMI)  survey.

In answer to special questions on the third quarter 2013 RMI survey, NAHB’s professional remodelers on average attributed 37 percent of their leads to “Existing and Returning Clients” and another 37 percent to “Referrals from Clients.”  No other source was responsible for more than 8 percent.  (The questionnaire was developed after extensive consultation with remodelers, to make sure it captured the important sources of leads).

Remod Leads

Not only are returns and referrals the most common source of leads, they’re also the best in terms of close rates.   In the same survey, professional remodelers on average said they closed 53 percent of their leads based on existing and returning clients, and 45 percent of their leads based on referrals from clients.  Again, these percentages are considerably higher than for leads generated from any other source.

Remod Close

The large share of business from customer returns and referrals doesn’t mean remodelers can neglect web sites and other means of advertising altogether.  The alternatives  offer newer companies that haven’t built up a customer base a way to generate businesses, and the close rates on leads generated from signage  and company web sites is a respectable 10 percent-plus.  An earlier post has shown that remodelers and builders can, in fact, generate substantial business from their company web sites, especially if the sites offer the right kind of information.