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Home Improvement Set to Surge

Thursday, October 16, 2014

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Residential contractors, start your engines: U.S. home remodeling is poised for robust growth in the months to come.

Improved housing turnover and strong home price appreciation in 2013 will drive greater spending on remodeling this year, according to The Tale of the Measuring Tape, a new forecast by New York City-based Fitch Ratings.

©iStock / phillipspears

The U.S. is seeing strong increases in female, non-white and foreign-born heads of household, which will influence marketing and spending activity, Fitch Ratings reports.

Home improvement spending should increase by six percent through the end of 2015, "despite a rather volatile rate of housing turnover" this year, reports Fitch, a global provider of credit ratings and research.

Ups and Downs

"Existing home sales fell nearly 6% through August while both new home sales and single-family starts increased slightly," Fitch Ratings Director Robert G. Rulla said in a report announcement.

"Nevertheless, the improving economy and employment picture coupled with more moderate but steady price inflation ahead should help boost home improvement spending through next year."

Fitch Ratings

Home improvement spending should increase this year and next, despite volatile housing turnover, Fitch says.

Unfortunately for some contractors, continued constraints on credit will rein in spending on big-ticket projects. But Rulla reported "some indications that homeowners, though still cautious, are beginning to undertake larger discretionary projects and purchases."

On the other hand, the report notes that U.S. household net worth is on the rise and has reached its highest point since January 2002. Household net worth totaled $81.5 trillion at the end of the second quarter of 2014—$13.6 trillion above the previous record high recorded in mid-2007, six months before the recesssion began.

The report also finds an improving Return on Investment from home remodeling projects, with the overall ROI reaching 66.1 percent in 2014 compared to 60.6 percent in 2013.

Doing the Numbers

The 77-page report details a 25-year look at a wide variety of indicators, including spending trends, home improvement industry estimates, market trends, credit, housing outlooks, construction employment data, and coatings and materials prices.

Fitch Ratings

It also offers a meta-look at other reports on metrics such as homeownership and the size of the home improvement industry, which vary widely.

Estimates of the home-improvement industry range from the U.S. Census Bureau's 2007 figure of $226.4 billion, to retailers' 2005 estimate of more than $700 billion, to a Harvard University 2011 estimate of $275 billion, the report notes.

Trending Now

Looking ahead through the end of 2015, the forecast sees:

  • Continued consumer demands for larger homes;
  • A growing share of households headed by women, immigrants and non-whites;
  • More remodeling by Generation Xers, who have come of age amid the popularity of home-improvement televions shows;
  • Rebounding spending for home improvement;
  • Volatile housing turnover;
  • Higher home prices; and
  • Improving Return on Investment from remodeling projects.
©iStock / phillipspears

Tight credit and unemployment are expected to rein in spending on big-ticket remodeling projects.

On the other hand, challenges remain, according to Fitch. They include;

  • Negative equity overhang, with a high number of homeowners still having little or no equity in their homes;
  • Tight credit;
  • Persistent unemployment in some regions and sectors; and
  • Shaky consumer confidence relative to historical patterns.



Tagged categories: Architectural coatings; Building materials; Maintenance + Renovation; Maintenance coating work; Market forecasts; North America; Rehabilitation/Repair; Residential Construction; Residential contractors

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