Remodeling Activity Declines Slightly In Fourth Quarter

February 7, 2008 – Remodeling activity showed pressure from the housing downturn during the fourth quarter of 2007, according to the National Association of Home Builder’s (NAHB) Remodeling Market Index (RMI). The current market conditions indicator decreased to 40.9 from 46.2 in the third quarter. And the future expectations measure declined to 37.9 from 43.3 in the previous quarter.

While housing starts have fallen sharply from the peak in early 2006, the remodeling market has shown a much smaller decline. Historical data show smaller fluctuations in the remodeling market as well as a time lag between movements in new housing production and remodeling activity.

The RMI measures remodeler perceptions of market demand for current and future residential remodeling projects. Any number over 50 indicates that the majority of remodelers view the market conditions as improving. The RMI has been running slightly below 50 since the final quarter of 2005.

“While the housing downturn has impacted the remodeling market to some degree, it is on a much smaller scale than the rest of the market” said NAHB Remodelers Chairman Mike Nagel, CGR, CAPS, a remodeler from Chicago. “Home owners realize the importance of maintaining their property and making necessary repairs to support the value of their homes, so we expect this type of work to start to pick up again.”

Nationally, the RMI components for major additions and alterations during the fourth quarter declined to 42.28 (from 46.89). Minor additions and alterations also decreased to 41.76 (from 47.07) except for an increase in the South region to 49.81 (from 43.68). Maintenance and repair remodeling work declined to 38.11 in the fourth quarter (from 44.31).

“The decline in the remodeling market is far less than in the new home market and generally consistent with our remodeling forecast,” said NAHB Chief Economist David Seiders.

The RMI “special questions” section during the fourth quarter asked remodelers about business conditions during 2007 and their expectations for the entire year of 2008. Forty-three percent of respondents reported an increase in billing in 2007, while 25 percent reported that billing stayed at the same level as in 2006. With respect to 2008, 51 percent predict a dollar volume increase and 27 percent predict maintaining the same volume for the entire year. These results suggest that while remodelers see slower conditions in their business during the short term, the long-term prospects look good with a remodeling market recovery by the end of 2008.

(Source: National Association of Home Builders. For more information, visit: nahb.org)