Remodeling activity slowed in the fourth quarter of 2005, according to the National Association of Home Builders’ (NAHB) Remodeling Market Index (RMI). However, current market conditions, as well as future expectations of the RMI, were still in the positive range for 2005 as a whole, though slightly below the 2004 average.
The RMI measures remodeler perceptions of market demand for current and future residential remodeling projects. Any number over 50 indicates that more remodelers view market conditions as expanding. The current market conditions dropped to 46.6 from 50.9, and the future expectations index moved to 47.5 from 51.8.
"The rise in interest rates has slowed homeowner refinancing, often used to fund remodeling projects," said Remodelors(TM) Council Chairman Vince Butler, CGR, CAPS, GMB. "The less frenzied housing market also contributed to a lowering of market expectations in the final quarter, but we still expect to see solid growth in the remodeling industry in 2006."
Owner-occupied units shifted to 48.9 from 56.2, while the renter-occupied component grew to 40.4 from 37.9. In the futures expectation index, owner-occupied units moved from 55.4 to 50.4, and renter-occupied units increased to 37.8 from 31.0. Remodeling accounts for 40 percent of all residential construction and improvement spending and more than 2 percent of the U.S. economy.
"The market could not sustain the record pace of home sales and housing production recorded in 2005, but we feel that 2006 will be a solid year in the housing sector with ongoing growth in the remodeling industry," said NAHB Chief Economist Dave Seiders. "Homeowner equity will continue to support the industry, and last quarter's rise in the rental components of the RMI bodes well for this year."
Regionally, strong growth in the West was offset by declines in the South, Midwest and Northeast. Current market conditions in the West improved from 56.3 to 58.5 and the future expectations rose from 55.5 to 63.5. The South's current market conditions dropped from 53.7 to 48.0, with the future index moving to 46.6 from 58.0. Current conditions in the Midwest moved from 50.2 to 41.1 with the future index shifted to 46.2 from 51.8. The Northeast's current conditions declined to 41.6 from 43.6 and the future index lowered to 41.0 from 48.2.
The RMI "special questions" section delved into significant problems remodeling firms faced in 2005 and expect to face in 2006, as well as major issues expected to shape the industry within the next 5 years. In 2005, 71 percent of remodelers faced high material costs, compared to 36 percent in 2001. Nearly eight in 10 expect material costs to be a significant problem in 2006. The availability of skilled labor ranked number two, as 67 percent of remodelers faced this problem in 2005, and the same number believe it will continue in 2006. More than three out of four remodelers believe this issue will continue shaping the industry within the next 5 years. In addition, 56 percent believe the aging population will provide strong support to remodeling within the next 5 years.
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