Harvard Economist Speaks to EM NARI about the Remodeling Industry’s Future
Kermit Baker is a Senior Research Fellow at the Joint Center for Housing Studies at Harvard University and the Project Director of the Remodeling Futures Program. Baker is also the Chief Economist for the American Institute of Architects in Washington, D.C.
Even with the recent dip in the stock market having some NARI members questioning the future of the remodeling industry, Kermit Baker relies on research and historical data that predicts continued growth in the industry. While it’s not double digit growth, Baker points out that the housing market is starting to accelerate, and he sees a 7-1/2% growth rate for the industry recently. When looking at the remodeling industry, “we see 5% growth on average over the last 20 years,” Baker says. When we apply these growth trends to a forecasting chart, “remodeling should be a $350 billion market by 2017”, which should come as welcome news to EM NARI members. This forecast is especially positive as Baker presented statistical data showing that income rates in the Boston market are supporting the current housing prices, indicating a healthy market with housing costs that are appropriately proportional to income.
Some of the insights Baker offered for remodeling in 2016 and beyond:
Accessibility: When looking at studies of population movement, the recently retired, or soon to retire trend toward staying near the places they know, which means an increase in the need for accessibility in three main features:
Baker’s research shows that, for the most part, new homes are not offering these features. Remodeling will be the only solution for older generations who want to stay in their existing neighborhoods, near family and friends.
Design/Build & Replacement Contractors: The Design/Build segment of the market is ending up with the biggest “ticket size”. The average size of projects done by design/build companies are surpassing full-service, exterior, kitchen & bath, and insurance restoration contractors. But while the size of project for the design/build market is going up, the largest increase in revenue across the industry lies with the replacement contractors who focus on non-discretionary exterior upgrades and maintenance.
Financing: While Baker states that it would be “short-sighted” of remodelers not to offer financing, the “industry still relies heavily on cash.” Between 2012 and 2015, the percentage of cash used on home-improvement has dropped slightly from 75% to 70%. Home equity lines of credit have absorbed much of that decrease. The ability of remodelers to offer some kind of financing with their sales process will, to an increasing degree, provide the difference between a sale and a stall.
For a full copy of the Remodeling Industry Forecast Presentation: CLICK HERE.By Justin Zeller, Red House Custom Builderwww.redhousecb.comEM NARI Board of Directors and PR Committee Chair