Remodeling Picks Up Pace in Second Quarter

"Surging home sales, steadily rising home values (against which people borrow to finance improvements) and a low-interest-rate environment all contributed to the pickup in remodeling in the second quarter," said Mike Weiss, NAHB Remodelers Council chairman. "Moreover, signs of an improving economy and rejuvenating consumer confidence mean the future is looking even brighter for professional remodelers."


The latest RMI was based on a quarterly survey of about 550 professional remodelers, whose answers to a series of questions were assigned numerical values in order to calculate two separate indexes. The first index gauges current market conditions and is based on remodelers' reports of major and minor additions and alterations, plus maintenance work and repairs, on both owner- and renter-occupied dwellings. The second index gauges expectations for the near future and is based on remodelers' reports of their calls for bids, amount of work committed for the next three months, job backlogs and appointments for proposals. A variety of "special questions" are also asked at the end of the survey to help pinpoint market perspectives.


Both indexes recorded substantial gains in this year's second quarter. The index gauging current market conditions rose 7.2 points from the first quarter to 53.6, its highest mark since the second quarter of 2001. A year-over-year comparison - which is more appropriate since the RMI is not seasonally adjusted - reveals a three-point gain from 2002's second quarter. Likewise, the index gauging future expectations rose to its highest level in two years, at 54.8. It rose 4.5 points above its standing in the first quarter and 2.6 points above its year-ago level.

"What's remarkable is that almost every category under the future expectations index showed gains from both the first quarter of this year and the year-ago period," said NAHB Chief Economist David Seiders.

"Remodelers are registering substantially more calls for bids, commitments for work over the next three months and backlogs of jobs in the pipeline than they have since at least the beginning of last year. That's a good basis for a truly optimistic outlook."

The West was the strongest region for professional remodeling in 2003's second quarter, posting the highest RMI readings for both current market conditions and future expectations. Every region posted gains from the previous quarter with the exception of the Northeast, where current market conditions rose but future expectations slid several points.

Meanwhile, results of the "special questions" section of the RMI reveal that local labor and regulatory issues remain at the top of many remodelers' concerns.

Fifty-seven percent of those surveyed identified "shortage of skilled labor" as a significant problem faced by their firms in the past 12 months. Past surveys show this is a continuing concern in the industry. Moreover, few expect the labor crunch to lessen in the near future. Asked for their perspectives on the most significant issues that will likely shape the remodeling industry over the next five years, "quality of skilled labor" and "availability of skilled labor" were at the top of remodelers' lists, with an overwhelming 75 percent and 70 percent of respondents naming these factors, respectively.

Thirty-five percent of remodelers in the latest survey identified "local government regulations" as a significant source of challenges for their firms, and this too is a continuing concern charted by past surveys. Looking forward, 52 percent predicted that government regulations regarding mold, lead paint removal and other issues would weigh heavily in the industry over the next five years.

A growing concern among remodeling pros is "low bidding by fly-by night contractors," which 49 percent identified as a problem in their market in this year's second quarter. That's up from the 40 percent who named this as a significant issue at the end of 2001.

"Legitimate professional remodelers are definitely raising a red flag regarding low-ball operators in their area," said Weiss. "We're advising consumers to ask for references, check with their local Better Business Bureau and verify that they are dealing with a reputable business before signing a contract for home remodeling and or repairs."

Asked to rate the importance of a variety of factors to their businesses' growth potential, "company reputation" was by far the most strongly valued element, followed immediately by "availability of trained labor."

"Shortages of skilled labor are a typical symptom of a strong remodeling market," said NAHB's Weiss. "It makes sense that amidst such an atmosphere, a remodeler's standing in the local community makes all the difference because it indicates whether the company can do a good job, on-time and on-budget. Members of NAHB's Remodelors Council are clearly aware of this and benefiting from their solid reputations."