Construction Informer

Here’s one that’s a bit challenging. Everybody wants to know what’s going on with remodeling, and in particular what to expect in terms of remodeling business. Well, it isn’t that nobody really knows the answer, it’s that everyone does.

I’ll start with my assessment since…well, it’s my blog. As the new housing market started to slow and go into its nosedive I suggested there may be increased remodeling in the forecast. My crystal ball came from a combination of Census Bureau historical records and logic – fewer people buying homes should mean more people staying in their homes and that could lead to more people remodeling their homes.

The Joint Center for Housing Studies (JCHS) at Harvard University does a lot of slicing and dicing of housing statistics and turns that effort into analysis designed to give us an idea of what the heck is going on when it comes to the humble abodes we all seem to be infatuated with.

In a press release out January 17 the JCHS wrote that "Tighter credit standards and falling consumer confidence are expected to depress remodeling spending through 2008," and that the slowdown would be in the area of a 2.6% decrease through the third quarter of 2008. That’s not a very big drop as a percentage since it is an annualized rate and would put it on par with the 2007 Q1 activity.

On January 24, Systems Paving, an installer of paving stones, issued a press release with the headline – "Remodeling on the Rise," and went on to cite JCHS statistics regarding remodeling. I think that release was using statistics from a JCHS report from August 2007 that was predicting long-term remodeling trends – into 2015.

The National Association of Homebuilders (NAHB) released a chart that was reprinted in Kitchen and Bath Design News with the headline: "Remodeling Activity: Holding its Own in the Face of the Housing Downturn," and it cited as evidence its own Remodeling Market Index (RMI) that shows the perceptions remodelers have about the market for remodeling. An RMI number over 50 means remodelers believe that market conditions are improving. In the third quarter of 2007 the number was 46.2. The last time the index was 50 or more was in the third quarter of 2005 when it was 50.9.

It seems to be though that remodelers have mixed results with accurately predicting their market. The JCHS publishes historical data showing billions of dollars spent on remodeling along with the percent change from the previous quarter. For every quarter in 2006 the NAHB’s RMI was under 50 while the market was growing by double digits in the first three quarters and then by almost seven percent in the final quarter. In 2007 the remodelers were closer to reality since their assessment was below 50 the entire year while actual activity ended up being down a percentage point. 

In the end predictions are guesses, some being better than others, but all still only guesses. If a remodeling downturn is spread equally across all markets that means according to the JCHS remodeling businesses that usually do $100,000 in revenue will be doing $2600 less in 2008 and companies doing $30,000 in gross revenue will be down by $780. I often wonder if predictions come true just because enough people believe them.

The people who lead smart companies will use predictions to help set strategies but won’t let them limit their goals.