Remodeling Update: Industry Speaks
Given the current reports of the subprime mortgage crisis, housing starts still down and the jettison cost of fuel, are contractors in the walls and ceilings trade, as well as providers, catering more to the remodeling market? Historically, the trade has commented that when housing starts are slow, residential and some commercial owners turn to remodeling. This remodeling would not only entail upgrades to cosmetic features of a unit, such as a makeover on a bathroom or kitchen, but also expanding with additions for greater living and storage space.
Remodeling activity throughout the U.S. remained steady during the first quarter of 2008, the National Association of Home Builders’ Remodeling Market Index announced in a press release from May. The index charts remodeler perceptions of market demand for current and future residential remodeling projects. Numbers more than 50 indicates that the majority of remodelers view the market conditions as improving. The RMI has been running below 50 since the final quarter of 2005.
“The remodeling market continues to show weakness, following the downturn in the overall housing market,” said NAHB Chief Economist David Seiders in the release. “We expect there to be some further erosion in 2008, with a gradual recovery in 2009.”
Nationally, the RMI components for major additions and alterations during the first quarter increased to 44.15 (from 42.28). Minor additions and alterations decreased to 41.57 (from 41.76). Maintenance and repair remodeling work increased to 39.68 in the first quarter (from 38.11). The amount of work committed for the next three months decreased to 29.63 (from 33.15 in the fourth quarter) demonstrating a decline in the backlog of remodeling jobs.
“While remodeling is down nationally, some markets continue to churn with activity,” said NAHB Remodelers Chairman Lonny Rutherford, CGR, CAPS, CGP, a remodeler from Farmington, N.M. “Many remodelers are seeing smaller jobs and have a shorter backlog, but we expect activity to increase because necessary home repairs cannot be postponed for a long time.”
According to Kurt Withrock, director of demand management and planning with National Gypsum Co., the current state of the remodeling market is probably soft as less homes are sold and purchased and “equity money from cash outs in refinancing have dried up.”
Flipside to Withrock’s observations, Fypon, a manufacturer of ornamentation products specifically targeted to the remodeling market, has a different take. The company says that despite the downturn in housing and new construction, the company continues to see growth in the remodeling business. Fypon’s Marketing Manager Crystal Rodriguez says homeowners and remodelers realize the value of remodeling products as a cost-effective way to upgrade their homes and differentiate in a tough market.
Barry Reid, product development marketing manager with Georgia-Pacific Gypsum, says the trends he sees within the market suggest that more homeowners are expanding living spaces, such as basements and attics. He points out that he is seeing more and more homeowners building in what he calls “vulnerable areas,” those spaces that are challenged in thermal and moisture related areas.
“Basements struggle with moisture issues and may be a challenging area of the home to remodel. Remodelers have to keep that in mind,” Reid says.
“Those are key areas and things we are seeing [trends] in the remodeling market include attention to energy and water efficiency along with proper moisture management practices.”
Furthermore, he says going forward, homeowners are paying closer attention to using more sustainable products. Although the cost may be higher, the investment in sustainable product lines will add greater value to the home, and is something owners can market when deciding to put a home up for sale or take stock that the home now features products that are built to last a longer period.
“How it’s relative to our paperless gypsum product’s remodeling is not just about adding, but about replacing. What we see in remodeling is an upgrade in materials and practices that basically are better than what they are replacing. When a shower fails, it may be that greenboard was used as a tile backer. They won’t replace with greenboard, they’ll replace it with DensShield because it performs better than greenboard in the shower area,” Reid says.
This illustrates the point of replacing existing products with better products, making it a value-add for the contractor to his customer, he says.
With the residential slump at a low, has this strengthened or weakened the remodeling market?
“Without question the market has slowed, but where we see the greatest opportunity is in the green conversation,” says Jeff Hire, Owens Corning’s director, residential products and programs Insulating Systems Business. “With buildings being the number one user of energy-more than industry or transportation-the building and remodeling industry has the opportunity to help dramatically increase energy efficiency and reduce greenhouse gas emissions.”
He says homeowners today want to live “greener” and reduce their energy related bills. This provides remodelers and contractors with a great opportunity to work with their customers to upgrade their energy efficiency and show them how they can save money on their energy bills and reduce emissions, he states.
“For instance, properly insulating an attic is one remodeling project that meets both needs -- insulating an attic to the Department of Energy’s recommendation can help save up to one-half ton of greenhouse gases every year! And a properly insulated house can save up to 20 percent in heating and cooling energy related bills,” Hire says.
From a commercial perspective, Dryvit comments on how it views the state of the remodeling market.
“We see more and more commercial renovations taking place, especially on structures that are poorly insulated,” says Dryvit’s Tony Stall, vice president of marketing and sustainability. “A Dryvit Outsulation system is ideally suited to this type of work, as it allows the interior of the building, and those inside, to remain unaffected while at the same time, both increasing insulation and curb appeal of the building, from the outside. Commercial remodeling will likely increase in a ‘down’ economy, and as more and more buildings age and are in need of either a new look, additional insulation, or both.”
Dryvit says its products are used very little in residential remodeling, though in theory the same factors apply to homes as to commercial structures says Stall. He says as energy costs continue to climb, there is more interest in making one’s home more energy efficient, and Dryvit says it is positioned for this demand.
“With high energy costs there may be more interest in renovations that lower the operating costs of a home by increasing energy efficiency; this has heretofore been less important than the appearance of a kitchen or bath,” says Stall.
Quail Run Building Materials, a manufacturer of cold-formed steel framing products, says the current remodeling market for the company right now is not good. Fred Serpico, vice president of marketing and product development, says the company serves the remodeling market at 30 percent of its business interests and states that with housing down, the level of activity in remodeling hasn’t changed much.
Contractors in the states report times are a bit more sobering. Steve Kuhn, owner of Steven A. Kuhn Construction in Telford, Pa., is thinking more in terms of utilizing his time and resources better. With the cost of fuel, he is planning his day more efficiently and responsibly: packing lunches, cutting multiple trips to the lumberyard, figuring out how to be more productive if he is missing a tool or materials, etc.
Yet, Kuhn is upbeat on how he sees business and describes his activity good.
“On a scale of one to 10 I would say it’s an eight,” says Kuhn.
He has noticed that with the housing starts at a low, his level of remodeling has gone up. He is working more on home additions that increase living space, such as basements and attics.
“I know a lot of guys that do construction that were hurting in home sales, but I’ve filled a few homes, mostly remodeling and renovating. People are tending more to remodel than build these days. And I would say most people that live in the same house have so much equity because of real estate values rising, up until last year. Therefore, remodeling is a no-brainer,” Kuhn says.
Like Georgia-Pacific’s Reid, Kuhn also believes that a greater shift towards sustainable building will be among the leading trends in construction. He says people will place greater emphasis on using more sustainable building products and appliances.
Times are much harder for Heath Jimerson, owner of Jimerson Construction LLC, out of Chadron, Neb. As a contractor that does all types of construction projects, with an emphasis on drywall, EIFS and finish work, the work has dried up in his part of the Midwest. In fact, the situation is quite difficult and complex for the company:
The past year, the company was building a custom home for a customer with excellent credit and in good standing, according to Jimerson. His local bank had no problem financing the project, yet when it came time for the secondary lender to sign off on the project, no bank would take it,despite supportive comp listings in the area and Jimerson’s good credit line as a supplier. Long story short, this forced Jimerson to lay off several employees and reshift his focus on remodeling work and a side-business run with his wife selling organic pet food.
“I think for us and what’s happened to me in this business, [remodeling will] be our mainstay now. Our main bread-and-butter was new custom houses and new commercial. And that has come to a standstill,” says Jimerson.
Some issues are beyond the contractors’ control, as Jimerson noted through his experience. And as Kuhn says, his daily routine has had to be readjusted to think on more efficient and concise practices throughout his day. And as all manufacturers know and most have experienced, it may take diversification of product lines or business approaches during harsh times. But the good news is, even if remodeling is holding steady or a little soft, the residential market could be seeing an upswing within a year.
In regards to a rebound in the market, Rodriguez says it could be sooner than 2009. “From indicators we’re seeing [Fypon], we believe the market rebound will occur region-by-region. We believe some regions will recover as early as the end of 2008,” she says.
Stall says Dryvit at this time believes housing will rebound in late 2009 or early 2010, at most likely a regional recovery.