Remodeling Market Index Steady at Historical High

January 23, 2014

The NAHB Remodeling Market Index (RMI) held steady at 57 in the fourth quarter of 2013. This is the same level as the third quarter of 2013 and the highest reading since the first quarter of 2004.

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.

RMI_4q_13

The RMI’s future market conditions index rose from 56 in the previous quarter to 58, the highest reading since the inception of the series in 2005. Three of the four major components of the RMI’s future market conditions index increased in the final quarter of 2013. Calls for bids increased from 56 to 59, the amount of work committed for the next three months from 52 to 54 and appointments for proposals from 55 to 59. The backlog of remodeling jobs fell one point to 59.

The current market conditions component of the RMI declined two points to 56 this quarter.

Steady existing home sales, historically favorable interest rates for home buyers and rising home equity have combined to release some of the pent up demand for home remodeling from the past few years. This quarter’s RMI reading shows that the slow but steady improvement in the remodeling market will continue in 2014.

For more information about remodeling, visit www.nahb.org/remodel.


Owners Spend $1.9 Million to Remodel in Typical Zip Code

January 21, 2014

Home owners in the typical zip code area spent a total of $1.9 million to improve their homes in 2013, according to new zip-level estimates developed by the National Association of Home Builders (NAHB).  This works out to about $1,400 per owner-occupied home within the zip code (based on the median across all zip codes estimated by NAHB).

The estimates are based on a statistical model developed by NAHB, using data from the HUD/Census  Bureau American Housing Survey) that relates remodeling expenditures to the number of owner-occupied  homes in the area, the share of those homes built in the 1960s and 1970s, the average home owners’ income, and the share of owners  who are college educated.  The model is applied to data from the Census Bureau’s American Community Survey, using  geographic boundaries developed by the Census Bureau to capture zip code mailing addresses.

The estimates of remodeling  by zip code were produced by NAHB economists for NAHB Remodelers.  Those who are not members of NAHB Remodelers and have questions about the zip-code level data can contact NAHB Remodelers staff.

While the median level of spending on improvements is $1,400 per owner-occupied home, it can be as high as $5,000 in particular cases.  Estimates for the top five zip code areas in the country by this measure are shown below.

Top 5 Zips

These five zip codes are located in the suburbs of San Francisco, Manhattan, and Long Island.  They’re characterized by home owners who are 73 to 93 percent college educated with high average incomes (roughly at or above $400,000).  The first and fifth zip code on the list also have a high percentage of homes built in the 1960s and 1970s, an age when the NAHB model indicates homes undergo above-average remodeling.

The map below shows average spending on improvements per owner-occupied home by zip codes.

Remodel_zecta3

For convenience, the estimates have also been aggregated up to the state level:

Remodeling by State


Remodeling Market Index Up

October 24, 2013

The NAHB Remodeling Market Index (RMI) continued to climb, although at a modest pace, in the third quarter of 2013. Rising two points to 57, this marks the highest reading of the RMI since the first quarter of 2004.

3q_13

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. The RMI’s current market conditions index rose from 54 in the previous quarter to 58, the highest reading since the creation of the RMI in 2001, driven partly by rising existing home sales.

All three major components of the RMI’s current market conditions index increased in the third quarter.  Major additions and alterations increased from 51 to 55, minor additions and repairs from 55 to 58, and maintenance and repair from 57 to 59.  The future market indicators component of the RMI remained even with the previous quarter reading of 56.

Regionally, the RMI has registered two consecutive quarters of gains in the Northeast, Midwest, and West.  In the South, the RMI edged down slightly in the third quarter after a five point gain the quarter before.   All four regions were above 50 and higher in the third quarter than in the first quarter of 2013.

In addition to rising existing home sales, which support remodeling activity as owners fix up their homes before and after a move, remodeling has benefitted from rising home values. This boosts home equity that owners can tap to finance remodeling projects.


Housing-Related Tax Provisions Expiring at the End of 2013

October 23, 2013

With the government shutdown/debt ceiling conflict resolved, at least for the next few months, it is a good time to revisit the policy debate that preceded it – the fiscal cliff.

In January, a number of real estate related tax provisions were extended for another year. At the end of 2013, these provisions are set to sunset. And for now, there appears to be little likelihood of a “tax extenders” bill being enacted before the end of the year.

The following are housing or real estate related tax provisions that expire at the end of 2013:

Housing Rules

  • Mortgage debt forgiveness tax relief: rule that prevents tax liability arising from many short sales or mitigation workouts involving forgiven, deferred or canceled mortgage debt.
  • Deduction for mortgage insurance: reduces the after-tax cost of buying a home when paying PMI or insurance for an FHA or VA-insured mortgage; $110,000 AGI phase-out.
  • The section 25C energy-efficient tax credit for existing homes: remodeling market incentive with a lifetime cap of $500.

Business Rules

  • The section 45L new energy-efficient home tax credit: allows a $2,000 tax credit for the construction of for-sale and for-lease energy-efficient homes in buildings with fewer than three floors above grade.
  • The 9% LIHTC credit rate: absent the credit fix, the LIHTC program would suffer a loss of equity investment for affordable housing projects; in place for 2013 allocations.
  • Base housing allowance rules for affordable housing: income definition rules.
  • The section 179 small business expensing limits: offers cash flow and administrative cost benefits for small firms, with limits of $500,000 for deductions and $2 million for capital purchases.
  • The section 179D deduction: provides a deduction for some energy-efficient upgrades to multifamily and commercial properties.
  • New Markets Tax Credit: no new allocations of this community development tax credit.

At this time, it would be prudent for homeowners and housing stakeholders to assume that all of these tax provisions will sunset at the end of 2013. If these rules are extended, it will almost certainly occur retroactively through legislation passed later in 2014. And of course, comprehensive tax reform could change all tax rules substantially.

Finally, while not expiring at the end of 2013, it is worth noting that the section 25D 30% credit for installation of solar, wind, fuel cell, or geothermal residential power production property expires at the end of 2016. This credit can be used in connection with both remodeling and new construction and is claimed by the homeowner.


What Do Home Buyers Buy after Moving

October 17, 2013

In a post last week we discussed NAHB research showing how during the first two years after closing on a home sale, home buyers tend to spend money on furnishings, appliances and remodeling considerably more compared to non-moving owners. Buyers of new homes spend most, outspending non-movers by a factor of 2.8. Buyers of existing homes spend twice as much as non-moving owners. This post reveals particular items that are most popular with home buyers and helps explain changes in their spending behavior triggered by a house purchase.

The NAHB analysis of the Consumer Expenditure Survey (CES) data from the Bureau of Labor Statistics shows that the biggest outlay in the budget of new home buyers is furnishings. They spend $5,288 on furnishings during the first year after buying home, outspending buyers of existing homes 2.2 times and non-moving owners 5.3 times. Average spending is estimated for all households in the group regardless whether they purchased a certain item or not. Thus, higher averages may point to larger and/or more frequent spending by the group.

Single-Family Detached Home Owners’ Average Annual Spending on Various Items, 2007$

Spend_chart

The biggest ticket item for all home owners is bedroom furnishings, including mattresses. However, buyers of new homes spend twice as much on this item as existing home buyers and outspend non-moving owners six times.  This is not surprising considering that the number of bedrooms in new single-family detached homes has been on the rise.

The second largest furnishings outlay for home buyers is sofas. New home buyers spend on average $746 during the first year after moving, more than double of what existing home buyers spend, and more than six times the amount spent on sofas by non-moving owners.

The differences are even larger when comparing spending on window coverings. New homebuyers outspend existing home buyers 7.7 times and non-moving owners 24.7 times.

New home buyers also outspend non-moving owners on every single appliance listed in the CES. They also tend to outspend existing home buyers across almost the entire range of appliances. The few exceptions include lawnmowers, gas stoves, built-in dishwashers, and some other miscellaneous appliances. The high level of spending by new home buyers may seem surprising considering that many new homes come with installed appliances, but the data suggest that these purchases are nevertheless more frequent among these households.

New home buyers spend the most on televisions, refrigerators, clothes washers/dryers, and computer systems – items that are less likely to be included in the purchase of a new home. The most expensive appliances in the budget of existing home owners are clothes washers/dryers, refrigerators, and lawnmowers.

Somewhat surprising, new home buyers spend almost as much as buyers of existing homes and outspend non-moving owners on property alterations and repairs. However, the specific types of remodeling projects are quite different across the groups. As expected, buyers of existing homes and non-moving owners spend more on various repairs and replacements. As a matter of fact, existing home buyers spend more than new home buyers on every single item the CES lists as a repair or replacement. They also outspend new home buyers on kitchen/bathroom addition or remodeling, and purchasing and installing new items such as HVAC, plumbing, electrical and security systems, paneling, flooring, siding, windows and doors.

However, when it comes to outside additions and alterations, including additions of patios, terraces, new driveways, and fences, new home buyers outspend existing home buyers and non-moving owners by far. There are several items where non-moving owners outspend homebuyers, including addition of detached garage, repairs of driveway/walk, siding/roofing, replacements and repairs of doors and windows.


Construction Spending: Improving at a Slower Rate

September 3, 2013

Total private residential construction spending increased marginally to a seasonally adjusted annual rate of $334.6 billion in July 2013 according to Census estimates. Spending continues to improves, but remains well below the peak pace of $676.4 billion in March 2006. The current reading is 17.2% higher than a year ago.

Single-family spending registered a slight increase of 0.5% for the month, while the home improvement category increased 0.8%. The multifamily category remained nearly unchanged with an increase of 0.1% for the month.

Chart_September

In spite of the tepid month-over-month increases for July, on a 3-month moving average basis, all categories have experienced significant improvements over the course of 2013. Remodeling related spending is up 6.5% for the year-to-date. Single-family spending has increased by 11.6% and multifamily spending has increased 16.0%.

Since market low points, total private residential construction spending is up 46.4%, single-family 84.5%, multifamily 143.8%, and improvement-related spending 29%.

The data shows improvements in construction categories for all categories but at a slower month-over-month rate than experienced in recently. The slow-down comes ahead of the effects of an increase in mortgage interest rates that has slowed both new home and pending home sales.


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.