NAHB’s Remodeling Market Index Rebounds in the Second Quarter

July 26, 2013

NAHB’s overall Remodeling Market Index (RMI) rebounded in the second quarter of 2013, bouncing back up to the post-2004 peak of 55 it reached at the end of 2012.  An RMI above 50 indicates that more remodelers report market activity is higher than lower, compared to the previous quarter.  After a long stretch below that break-even point, the RMI has been near or above 50 for four straight quarters.

RMI Q2 2013A

The overall RMI averages ratings of current remodeling activity with indicators of future remodeling activity.  In the second quarter, the current market conditions component increased from 50 to 54, while future market indicators increased from 48 to 56.   All of the sub-components of future activity (calls for bids, work committed for three months, backlog, and appointments) were over 50 for the first time in eight years.

RMI Q2 2013B

Some of the factors underlying remodelers’ positive outlook are rising home prices, which increase home owners’ equity and make it easier for them to finance remodeling projects, and additional momentum from existing home sales.   Previous research published by NAHB has shown that buyers of existing homes spend about $2,000 more than usual on remodeling soon after moving in.

Single-Family, Multifamily, Home Improvement Spending All Up

July 1, 2013

Total private residential construction spending increased to a seasonally adjusted annual rate of $328.6 billion in May 2013, the fastest pace of residential construction since October 2008. The reading is 1.2 percent above the positively revised April estimate and 22 percent higher since a year ago.

All three components of residential construction spending registered gains. New multifamily construction spending showed the largest increases, rising 2.5 percent since April and 51.7 percent since May 2012. It is now at a seasonally adjusted annual rate of 31.8 billion.


Spending on new single-family homes increased to an annual rate of $166.3 billion, the rate unseen since August 2008. On a year-over-year basis, new single-family construction spending increased 33.2 percent.

Finally breaking the decline that started in January 2013, home improvement spending also registered gains. Remodeling spending increased to an annual rate of $124.2 billion, 1.9 percent above the April reading, 7 percent above the year ago, but still below the spending rate registered during the first quarter of 2012.

Do It Yourself or Hire a Professional?

May 8, 2013

To celebrate National Home Remodeling Month in May, the National Association of Home Builders (NAHB) Remodelers recommends that home owners consider the safety risks, time delays and hidden costs before attempting do-it-yourself (DIY) home improvements.

According to the 2011 American Housing Survey (AHS) from the HUD/Census Bureau, home owner do-it-yourself (DIY) projects accounted for 37 percent of all home remodeling projects performed nationwide from 2010-2011 but only 18 percent of all remodeling spending. DIY home improvement projects tend to be smaller, require less technical training and expertise and cost less, with 50 percent of home owners spending less than $950 on these projects. At the same time the median spending on professional remodeling projects is close to $4,000.

One of the most expensive remodeling projects is a kitchen addition, with half of these projects costing more than $27,000. Very few homeowners attempt or manage to add a kitchen on their own. The AHS data show that more than 80 percent of kitchen additions are done professionally.  Replacing roofing is also largely outsourced to professional remodelers, 82 percent of these projects are completed by professionals. Home owners also tend to hire professionals when it comes to home improvement projects that require technical training and, often, a professional license.  Close to 90 percent of all remodeling projects that involve adding or replacing HVAC system are done professionally. Almost two thirds of projects that replace internal water pipes, electrical system, major equipment and appliances are completed by professionals. Not only that home owners might not have the right tools and knowledge to complete these projects, but many warranties become void by improper installation.

Home owners are more adventurous and successful in finishing smaller projects. About half of all plumbing fixtures replacements are completed with no professional help. More than half of all bedroom and recreation room renovations are completed by home owners as well. These tend to be smaller projects, with half of them costing less than $1,500 and $1,600, respectively. Professional bedroom and recreation room renovations are bigger in scope with median spending of $5,000 and close to $7,000, respectively.

For additional tips and considerations before taking on a DIY home remodel read the National Association of Home Builders (NAHB) Remodelers press release

Weak Remodeling Activity Weighs on Residential Construction Spending

May 2, 2013

Total private residential construction spending increased 0.4% on a month-to-month basis during March 2013. After data revisions, first quarter nominal spending levels came in 2.3% lower than the final three months of 2012. With that said, private construction spending has bounced back by 33% since its cyclical low from nearly two years ago and has advanced more than 18% compared to March 2012.

Spending on new single-family housing notched its 21st month-to-month gain over the last 22 months, increasing 1.6% versus February, which itself was revised higher from 4.6% to 5.4% growth. On a year-over-year basis the new single-family category has expanded 38% and has managed to rise 78% above the cyclical low observed back in mid-2009. With the current NAHB forecast projecting growth of 26% and 28% for single family housing starts in 2013 and 2014, respectively, we expect spending activity to continue rising over the next two years.

construction spending

New multifamily construction spending registered a modest gain of 0.3% in March, but the initial estimate of a 2.2% drop for February was revised to a smaller decline of 1.4%. Despite these two lackluster months, the first-quarter average was a 12% improvement from the fourth quarter of 2012 and the nominal dollar value of spending has skyrocketed 111% in less than two years. The forecast calls for a modest decline in multifamily starts during the second quarter of 2013 after what was likely an unsustainably large increase during the first quarter (primarily in March). Multifamily starts are expected to increase in every quarter thereafter, albeit at a slower and steadier pace, which in turn will yield further growth in nominal spending levels.

While the other two categories improved, home improvement spending was a source of weakness for the residential construction sector. Remodeling expenditures have declined in each of the last five months, with the March 2013 estimate coming in at a drop of 1.4% compared to February. The 3-month moving average, which tends to smooth out the month-to-month volatility in reported home improvement spending, points to a noticeable dip in remodeling activity after a healthy surge between spring and fall of last year. The most recent forecast calls for remodeling activity to rise modestly over the remainder of the outlook period. However, this downward trend in spending data plus the latest edition of NAHB’s Remodeling Market Index point to some risk to projected home improvement activity over the near term.

Remodelers’ Confidence Dips in the First Quarter

April 30, 2013

Conditions in the remodeling market dipped in the first quarter, according to NAHB’s survey of professional remodelers, as the overall Remodeling Market Index (RMI) derived from the survey fell six points to 49.   Prior to that, the RMI had been generally trending upward, albeit with significant quarter-to-quarter fluctuations.  So, although the first quarter 2013 RMI indicates a pause in the improvement that the remodeling market had been showing, it is nevertheless the third highest reading for the RMI since the first quarter of 2006.

RMI Q1 2013

An RMI above 50 indicates that more remodelers report market activity is higher (compared to the prior quarter) than report it is lower. The overall RMI averages ratings of current remodeling activity with indicators of future remodeling activity.

In the first quarter of 2013, both major components of the RMI declined. The future market indicators component decreased from 56 in the previous quarter to 48. Current market conditions fell from 54 in the previous quarter to 50.

Concern about the rising costs of construction materials and labor probably contributed to the pause in the general upward trend of remodelers’ confidence, as the rising cost of doing business makes it difficult to deliver at prices many customers expect.

For more detail on all RMI components and subcomponents, along with their history, see NAHB’s RMI web page.

Residential Construction Spending Bounces Back in February

April 1, 2013

After three consecutive months of slight declines, private residential construction spending increased 2.2% on a month-to-month basis in February. Despite the sluggish readings from the prior 3 months, nominal spending on residential construction activity remained more than 20% above its year-ago level and roughly 36% higher than the cyclical low in mid-2011.

The new single-family home category continued to show strength in February, gaining 4.3% versus January. Compared to February 2012, spending on new single-family homes has risen 34%, but perhaps more importantly, the level of nominal construction spending has surged more than 73% since bottoming out in mid-2009. Spending activity will likely expand further over the next two years as the current NAHB forecast calls for single-family housing starts to increase 23% and 29%, respectively, this year and next.

construction spending

The multifamily sector took a step back in February, with spending on new multifamily projects slipping 2.2% from January. In fact, this marks the first outright month-to-month decline for this category since September 2011. Still, the overall trend remains decidedly positive for new multifamily construction activity as the level of spending is 52% ahead of the pace in February 2012 and has more than doubled the August 2010 low point. After a likely modest retrenchment in the first quarter of 2013, the baseline forecast calls for consistent gains in multifamily starts through the end of 2014.

Home improvement spending improved slightly in February, gaining 0.5% versus the previous month and is 1.1% above the level from last year. Although this construction spending category is the most volatile and likely to be revised, the 3-month moving average suggests spending on remodeling activity has cooled over the past several months. Nonetheless, with existing home sales expected to register steady growth going forward, home improvement activity should see a similar pattern as sellers spruce up their homes for sale and/or buyers decide to make changes after they move into the home.

Builders Who Offer Downloadable Brochures, Advertise Benefits of New Homes Get More Business from Their Web Sites

March 11, 2013

Results from surveys on the use of information technology by builders and remodelers were discussed in a recent blog.  The same surveys also gathered some information about company web sites.  Results show that over 85 percent of both single-family builders and remodelers have web sites, and nearly all the sites contain company history, contact information and pictures of jobs.

In addition, web sites of large builders (those with at least 25 starts) also usually provide downloadable brochures and virtual tours, and to advertise the benefits of buying a new home.

It turns out that larger builders generate a larger share of their business from their web sites—35 percent, compared to only 10 or 12 percent for remodelers or smaller single-family builders.  Could smaller builders get more customers from their web sites by expanding what’s offered on the sites?

Looking at the smaller builders in more detail, the answer appears to be yes.  Builders with fewer than 25 starts, who provide neither downloadable brochures nor material on the benefits of buying a new home on their web sites, get only 7 percent of their potential buyers from the site.  But the share rises to 27 percent for small builders who provide both downloadable brochures and material on the benefit of buying a new home.

Web Site Business

So it really seems that many small builders could significantly increase the share of business they get from their web sites by providing 1) downloadable brochures, and 2) information on the value of buying new homes on their sites.

Material from NAHB on the benefits of buying a new home includes the piece on lower operating costs for new homes and the various consumer flyers and guides in the New Homes Month Toolkit, which will be updated and expanded in conjunction with the next New Homes Month, which occurs in April.

Among remodelers, the results are not quite as dramatic, but still significant.  Remodelers who provide downloadable brochures generate twice as many customers from their sites—18 percent—compared to 9 percent for those who don’t.

Further discussion and more detail are contained in the March 2012 Special Study in

How Much Does The Average Remodeler Earn in a Year?

February 21, 2013

The  Remodelers’ Cost of Doing Business Study, recently released by NAHB, is based on a nationwide survey of residential remodelers.  The survey, conducted in 2012, asked remodelers to provide their income statements and balance sheets for fiscal year 2011.  The study helps remodelers compare their financial performance against benchmarks for the industry as a whole as well as assess the financial health of their companies.

Figure 1 shows that, on average, residential remodelers earned about $1.1 million in total revenue.  Of that, $831,000 (73.2%) was spent on cost of sales (items such as labor, material, and trade contractors), leaving them with an average gross profit of $303,000 – a 26.8% gross margin.  After subtracting operating expenses, which averaged $269,000, remodelers were left with an average net profit of $34,000 – for a 3.0% net margin.  Operating expenses included indirect construction costs, financing, sales & marketing, general and overhead expenses, as well as owner’s compensation.

Fig1-2 BLOG

Results across business models showed a discernible difference between what general and design-build remodelers earn.  In terms of gross profits, general remodelers averaged a 22.2% margin, compared to 31.0% percent among design-build remodelers.  The difference carried through to the bottom line as well: general remodelers’ net margin was 1.8%, less than half that of design-build remodelers, 3.9% (Figure 2).


Results for the top 25% and bottom 25% of all remodelers (in terms of net profit margin) show how the most and least successful remodelers performed.  The net margin among that top 25% group, for example, averaged 15.9%, significantly higher than the 3.0% for the average remodeler.

Remodelers’ balance sheets showed an average of $269,000 in assets, $176,000 in liabilities, and $93,000 in equity.  The current ratio among all remodelers was 1.49 and the debt-to-equity ratio 1.90.

Findings in the report are presented not just for all remodelers combined, but also across the four Census regions, by business model, revenue groups, number of years in business, and number of jobs completed so that remodelers can more accurately compare their numbers against similar peers in the industry.

Positive Run Continues for Residential Construction Spending

February 1, 2013

Private residential construction spending jumped 2.2% on a month-to-month basis during December 2012. The initial estimate of a 0.4% gain for November was moved up slightly to a 0.6% increase, but the October number was pushed appreciably higher from 1.3% to 3.2%. Spending has registered nine uninterrupted months of growth, as well as 16 of the last 17 months showing expansion. The nominal dollar level of spending has now reached its highest point since late 2008 and the average from the last three months is 32% above the cyclical low.

Spending on new single-family homes decelerated to its slowest pace of month-to-month growth since the first quarter of 2012, rising 0.8% versus November. On a year-over-year basis, the nominal value of spending on new homes has risen over 28%. In addition, since bottoming out around the midway point of 2009, construction spending has surged 59%. The current NAHB forecast calls for single-family housing starts to expand for the entirety of the outlook period, but a slower pace of growth is anticipated during the first quarter of this year. They are expected to re-accelerate over the remainder of 2013, and thus we anticipate a similar pattern will likely occur for construction spending.

construction spending


Construction spending on new multifamily projects jumped 6.2% during December 2012. Moreover, the initial estimate for November was revised higher from 0.5% to 1.8%, indicating spending activity finished the year strong. Of the three main categories of residential construction, multifamily has experienced the strongest rebound from its cyclical trough. Gains in spending have occurred in each of the last 15 months, with the latest month available representing the second largest percentage increase over this time period. On a year-over-year basis, the level of spending has skyrocketed more than 57% and has gained 97% from the bottom in August 2010.

Remodeling activity improved in December as spending climbed 2.9% from the prior month. Preliminary estimates for October and November were also revised higher, significantly higher in the case of October with a 1.9% decline turning into a 2.3% gain. The 3-month moving average points to a solid upward trend in home improvement spending and closed out 2012 at its highest nominal dollar value since September 2007. NAHB’s Remodeling Market Index (RMI) has offered a similar judgment on recent home improvement activity as the current and future market indicators have achieved their best readings since the first quarter of 2004.

Residential Construction Spending Rises for Eighth Consecutive Month

January 3, 2013

Spending on private residential construction activity ticked 0.4% higher on a month-to-month basis during November 2012. October’s preliminary reading of a 3% gain was bumped down to a 1.3% increase, but at the same time the initial estimate for September was pushed upward from 1.1% to 2.9%. Spending has increased in each of the last 8 months (and 15 of the last 16), rising to a 4-year high and nearly 33% above the trough during the third quarter of 2010.

New single-family home construction led the way in terms of spending growth among the private residential categories during November, posting a 1.3% increase versus October. Spending has climbed more than 29% above its nominal level of a year ago and stands 57% higher compared to the trough in mid-2009. A softer reading on single-family housing starts might point to some potential weakness in spending on this category going forward, but a 2-point increase in NAHB’s HMI and another strong reading on permit authorizations point to stronger construction activity (and by extension spending) over the near term.

construction spending

The multifamily construction sector registered its slowest rate of month-to-month growth in nearly a year, but November’s 0.5% still marked the 14th month in a row spending activity has increased. In the past year, nominal spending on multifamily projects has jumped 46% and stands nearly 83% higher than the low posted in August 2010. Starts of multifamily dwellings have averaged over 250,000 units for the past six months and approached 300,000 during the past two months. The current forecast calls for a modest slowdown in starts during the first quarter that will likely be followed by gains through the end of 2014–a pattern that can be expected for construction spending in this sector.

Spending on home improvements dipped 0.7% in November, adding to the 1.9% contraction (revised downward from a 1.8% gain) reported for October. Expressed as a 3-month average (so as to smooth out monthly volatility), nominal spending on remodeling activity has hovered around a 5-year high for the past few months. NAHB’s Remodeling Market Index (RMI) has pointed to an even stronger assessment of current market conditions by professional remodelers as the RMI reached 50 for the first time since 2005. Our forecast calls for steady gains in remodeling activity through the end of 2014.