Housing Slowdown Hits Remodeling, Too

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Source: Providence Journal
Publication date: April 29, 2007
By Christine Dunn; Journal Staff Writer

But a study says "the dip in spending" should be "mild and short- lived."

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The slowdown in the housing market has affected the home remodeling business, with many owners taking a harder look at when, where and how they spend on home improvements. But the increasing median age of the U.S. housing stock, combined with demographic trends, point to future growth in the remodeling industry, according to a recent study.

The rapid price appreciation of housing between 2000 and 2005 encouraged high-end remodeling, but since 2005, mid-level projects pay off better than upscale improvements, according to Harvard University's Joint Center for Housing Studies.

Siding and window replacement projects generally pay back 80 to 90 percent of investment at resale, better than the 70 to 80 percent return on kitchen and bath updates, perhaps reflecting an increased interest in energy conservation, the center stated in its "Improving America's Housing 2007" report. The Joint Center used survey data from Remodeling magazine and the National Association of Realtors for its return-on-investment analysis.

"The 2006 slowdown in the broader housing sector was reflected in the remodeling industry, with many homeowners putting their improvement activity on hold until the market stabilizes," said Nicolas P. Retsinas, director of the Joint Center.

Tom McNulty, of Cumberland, president of the Rhode Island Builders Association, who is in the real estate, home building and home remodeling businesses, said the local remodeling industry remains strong. The builders group does not collect or track data on how much is spent on home remodeling each year in Rhode Island, he said. Nationally, the remodeling market is approaching $300 billion a year, and has doubled in the past 10 years, according to the Joint Center.

Sonali Bajaj, the owner of East Side Kitchen and Bath, in Providence, said "there has been a really huge slowdown" in business since 2005. Bajaj's business specializes in the design, building and management of kitchen and bath remodeling projects. [The Joint Center reported that specialization in a particular type of remodeling has been another important trend in recent years.

Bajaj and McNulty said they still have clients who spare no expense in their projects. McNulty said this is particularly true for clients who plan to stay in their homes for a while, and are undertaking an improvement for their family's enjoyment rather than as an investment. Bajaj said that older customers who plan to stay in their houses usually have more to spend, and are more likely to spend it, than younger clients who may be thinking of moving within a few years. Baby boomers often choose "user-friendly" features like kitchen cabinets with pull-out compartments to make it easier to access items in the back of the storage unit, she said.

"We're all pretty busy here," said Esteruth Rumpler, a designer with Barrington Kitchen and Design. "We always have people who are more cost-conscious, and people who are more design-conscious."

Bajaj said the remodeling business typically slows in the fall months and during the winter holiday season, then picks up in the spring. This year, she said, activity increased this month, while several years ago, she had more customers eager to start planning projects in February. And Bajaj has noticed that many customers "are more cost-conscious" than they were in the past.

Bajaj said a "complete gut" kitchen remodeling project, which includes new cabinets, counter tops, flooring, appliances, windows, doors, and, possibly, removing a wall and enlarging the overall kitchen space, usually costs between $40,000 and $50,000, depending on the quality of materials used.

Minor kitchen remodels typically cost $15,000 to $20,000, and may include new cabinets, counter tops, and appliances. She said the owners of older houses on the East Side often opt for the more extensive renovations, while owners of newer houses in the suburbs may already have large kitchens and just want updated, upgraded appliances, cabinets and counter tops.

According to the Joint Center, the more people see that their property has increased in value, the more they are likely to spend on home improvements, often using home equity loans or lines or credit to pay for the work. But today, "rather than taking on expensive discretionary projects, homeowners are investing in more routine replacement projects, system upgrades, and mid-range rather than upscale improvements," it reported.

But "the dip in spending" should be "mild and short-lived," the Joint Center reported, projecting that spending on remodeling projects will grow by 43.6 percent between 2005 and 2015. A number of factors will contribute to the growth, the Joint Center reported:

The United States has an aging housing stock - the median age of owner-occupied housing was 31 years in 2005, up from 23 years in 1985 - that needs to be maintained and improved.

An increasing concentration of wealth will support the high-end remodeling market.

Rising energy prices will convince owners to invest in projects that promote energy efficiency.

A long period of "underinvestment in rental property" means there is a large inventory in need of upgrading, along with a growing demand for higher-end apartments.

The number of homeowners will grow by more than 12 million by 2015, with minorities, seniors, and non-family households expected to account for the largest increases in share.



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