Remodeler Sentiment Remains Positive
Even as new construction has been slowed by a rise in mortgage interest rates, the remodeling market has continued strong.
Evidence of this strength can be seen in the output from the quarterly NAHB/Westlake Royal Remodeling Index (RMI). The RMI is a survey of remodelers, examining current conditions and future expectations based on leads and inquiries and the current backlog. The recent reading was down three points to 65.
How can a down reading be a positive? This number represented the 14th consecutive quarter for which the RMI has been greater than 50. Any number higher than 50 indicates that a larger share of remodelers surveyed view conditions as good.
The remodeling sector has weathered this rise in interest rates better than new construction, as evidenced by its increasing share of total residential construction, from 31% in 2022 to 43% in the second quarter of 2023.
The Impact of Interest Rates
The interest rate rise is a double-edged sword for remodeling.
Higher interest rates affect the cost of credit for homeowners wanting to upgrade kitchen appliances, modernize a bathroom, or tackle a whole-house remodel by tapping into their home equity. This has dampened consumer enthusiasm for all projects.
On the other hand, mortgage interest rates that now stand at a 23-year high have affected the single-family, for-sale market more, making remodeling an attractive option. September existing home sales, for example, decreased 15.4% from a year ago and are below 4 million for the first time since November 2010.
The effect on housing starts is also significant: single-family starts for the month of September is 963,000 units—almost 13% lower year-to-date.
High interest rates are the big story now, but it’s not the only reason the remodeling sector is relatively strong and likely to maintain that strength into the future. Another significant factor is America’s aging population.
The Benefit of the Aging Population
The U.S. population aged 65 and over grew nearly five times faster than the total population from 1920 to 2020, according to the US Census Bureau. In 2020, the older population reached 55.8 million—one in six people in the US. That is projected to grow to 22% by 2040, according to the Department of Health and Human Services’ Administration on Aging.
The housing choices of older Americans is an important driver for remodeling.
NAHB surveys of remodelers over the years show a growing awareness among consumers about the concept of aging in place. In 2004, roughly 25% of remodelers said that none of their consumers were familiar with the concept, while 6% said most of their clients were familiar with it.
This year, just 2% said none of their customers were familiar with it, while 34% said most were. The number who said “some” or “most” grew from 75% in 2004 to 98% this year. That’s a significant growth in awareness among consumers over the last two decades.
It’s no surprise that in NAHB’s survey, 88% of remodelers stated that customers are planning ahead for their future needs, and 50% said they have older parents living with them who need aging-in-place accommodations such as grab bars, curbless showers, and wider doorways.
Interest rates rise and fall, but the powerful demographic trend we’re seeing now will continue for years, boosting remodeling.
Alicia Huey, a Birmingham, Ala.-based custom builder and developer with 30+ years of experience is NAHB’s 2023 Chairman.