Remodeling market down, but remodelers expect recovery

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Two-thirds of remodelers say business is worse than it was a year ago, but they’re optimistic that 2010 will be better

August 01, 2009
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Methodology

What will it take to change your market?

Two-thirds of remodelers say their market is worse than it was a year ago, but at the same time they’re seeing some relief on the horizon, according to the latest Professional Remodeler survey.

Sixty-seven percent of remodelers said their local market conditions have gotten worse over the last 12 months, compared with 19 percent who said

the market was unchanged and 14 percent who have seen an improvement. And that’s coming off of 2008, when 50 percent of remodelers had a decrease in revenue from 2007, according to our annual Business Results Survey.

Remodelers tend to be an optimistic lot, though, and most are expecting things to get better next year, with 57 percent predicting an improvement in the market and only 11 percent saying things will worsen in 2010.

The lone exception to this optimism is the Midwest. Only 46 percent of remodelers there are expecting a better 2010, and 20 percent say the downturn will continue over the next year. It’s the only region of the country where more than 10 percent expect the market to worsen.

 

Although 67 percent of remodelers say the market is worse now than a year ago, only 11 percent expect it to continue to worsen over the next 12 months.

Fifty-nine percent of remodelers in the Northeast and West and 66 percent of Southern remodelers think conditions will improve over the next year.

The results are not that surprising when considering the local economic conditions. The Midwest has a 10.2 percent unemployment rate, tied with the West for the highest in the country, and the Midwest has seen the biggest increase in unemployment over the last year, according to the U.S. Bureau of Labor Statistics. The region also includes several states hit hard by the recession, including Michigan, with it’s national-high 15 percent unemployment rate, and three other states with unemployment of more than 10 percent (Illinois, Indiana and Ohio).

Consumer confidence is key

The biggest factor in improving the remodeling market will be increasing confidence, remodelers say.

We asked remodelers to rank several factors on the importance in driving a recovery in their local market. Consumer confidence topped the list, with nearly 90 percent of remodelers ranking it in the top three. Coming in second was “Consumers’ inclination to spend rather than save,” followed by availability of financing, increased housing values, higher employment and fewer foreclosures. Not surprisingly, these are all factors that drive consumer confidence.

 

Nearly half of companies have seen a substantial decrease in their average job size over the last year, and more than three-quarters have seen at least some dip.
More than 40 percent of remodelers report an increase in  competition this year, with new construction firms’ jumping into remodeling being the top culprit.

We also separately asked remodelers what was needed to turn their market around, allowing them to provide any answer. More than a third listed some variation of consumer confidence. The only other answer that was close was the more than 10 percent who responded with some sort of complaint about the government. Smaller jobs, fewer leads drive downturn

Anecdotally, it’s not hard to understand why so many companies are struggling this year. Take fewer leads, a lower close rate and smaller job sizes, then toss in increased competition in many markets and you’ve got a recipe for disaster.

The numbers back the stories. Most remodelers are seeing significant drops in average job size. Nearly half of remodelers reported a “substantial” drop in average price tags from a year ago, and 77 percent saw at least some decrease. Only 11 percent of firms had an increase in average job size over the last year.

Leads are down for 72 percent of companies, compared with the 15 percent of companies that are getting more leads. And once they get those leads, remodelers are finding it harder to close the deal, with 64 percent saying their close ratio has dropped over the last 12 months (although 13 percent did report higher close ratios).

Many remodelers are also seeing more competition. More than 40 percent of companies reported an increase in competitors. The recession also seems to be knocking some companies out of the market, though, as 36 percent of firms said the number of their competitors has decreased.

Of those companies that are facing increased competition, 68 percent are dealing with new home builders; 57 percent, former trade contractors; and 53 percent, former employees of new construction and remodeling firms. Ten percent said they are seeing increased competition from other sources, such as unemployed DIYers and college students.

 

Methodology

378 remodelers with 2008 revenues of more than $500,000 completed the survey online. Data were collected June 8 to June 27, and participants were chosen from a random sample of subscribers to Professional Remodeler magazine and eNewsletters.

What will it take to change your market?

We asked remodelers, “What’s the most important thing that needs to happen to turn your market around?” Here’s a sampling of their write-in responses:

  • “Get the government out of our business.”
  • “The media and Wall Street need to instill consumer confidence to American people. There is way too much doom and gloom out there, and people are very nervous.”
  • “The national economy must stabilize and turn around and start growing.”
  • “Consumers need to feel good about their current and immediate future financial condition and employment outlook. Until confidence improves, even those with the cash aren’t going to spend on anything but the necessities.”
  • “The government needs to have leaders who do what is good for the country instead of political gain.”
  • “Our market is not bad.”
  • “[We] need to have more large companies to employ more people.”
  • “The builders need to go back to building houses. They don’t know how to manage remodeling clients and therefore price their jobs way too low.”
  • “Consumer confidence seems to be the key. People appear to be interested in renovations; however, they are waiting to see if more bad news awaits us. Most of our work is done through discretionary spending. On a political note, I think it would help if the minority in Congress would try to work with the majority and vice versa, showing a united approach to the problems.”
  • “No turnaround [necessary]; it has never been that bad.”
  • “Everyone should get busy doing and stop waiting for others, i.e. the government, to do it for them!”
  • “The financial sector has to improve a lot. People have to get their investments back closer to what they have lost in order to start spending on their homes.”
  • “Unemployment needs to stop increasing, and home values need to stabilize. Also, home builders, tradespeople and unemployed professionals need to stop 'trying their hand’ at remodeling.’”

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