Remodelors Council Update: Industry Forecast

If these projects end up in a downturn during the near term, swallow your pride and follow the reality of life a few rungs down the ladder: Do some replacement and repair work.

May 31, 2001

 

Alan Hanbury, CGR, 2001 Chair, Remodelors Council Board of Trustees

Relax, fellow remodelers, I have been to the mountain (Harvard), and the view (economic prediction) is still great. At the Harvard Joint Center for Housing Studies’ Remodeling Futures program on March 20, some of the best minds were brought together to gauge our industry. They evaluated where it is and forecast where it will likely go.

The first piece of good news is that we residential remodelers now have our own NAICS number — 236118. The number will officially go into effect for 2002, but you can use it immediately. It will make capturing more timely and accurate information and quicker turnaround long-awaited realities for our industry. In the meantime, the industry is being dissected by economists who see a rosy picture of real dollar growth during the next 10 years, enough to surpass new construction once and for all.

In fact, it is the abundance of new housing built each year for the past 25 years that adds to our already aged housing stock sorely in need of maintenance. A good percentage of the $180 billion of work we do annually is maintenance and repair: some $40 billion worth. The major replacement market of new roofs, siding, windows, heating systems, etc. accounts for another $60 billion, also fueled by the aging of the housing stock.

Additions Homework

Additions and alterations work is currently measured at about $40 billion. It is the most erratic area of our industry, following the whims of the financial side of the home building industry and interest rates. New construction drives clients to stay put, but also to add those things cropping up in the new developments, infill housing and vacation condos that our future clients see. They miss the trees and comfort of an established neighborhood, and they don’t like the drive to the store.

The additions segment of the market falls the furthest in bad times and has shrunk from its high in the second quarter of 1999. However, it should be the quickest to recover when the public’s collective psyche turns the corner, which is predicted to be in two more quarters. You need to take new home tours, watch design trends and walk trade-show floors to get a sense of what the clients want if they move. I suggest a trip to the Remodelers’ Show, Nov. 1-3 in Atlantic City, N.J., as a good start.

Remodeling After Move-in

Another tidbit revealed by the Joint Center is consumers’ tendency to spend more during the first two years in a home (used or new) than in other years. Customers are adding those amenities they couldn’t quite justify in that newer house. Granted, the average expenditure is only $1,300, which means lots of paint, paper, floor refinishing, front doors and bay windows, but the figures show significant numbers of larger projects, too: decks, master bedroom suites, offices and rec rooms added are mixed in with the half-million baths and kitchens remodeled every year.

Staying-Power Strategies

If these projects end up in a downturn during the near term, swallow your pride and follow the reality of life a few rungs down the ladder: Do some replacement and repair work. Do it for past clients, but do it for a profit. In a few quarters, when your old market niche comes back nicely, you will be fully staffed and cash-ready to expand and profit from the next wave of the running of the bulls.

Flexibility will be the watchword this year. Check your budgets for too-rosy assumptions. Play some what-ifs on your spreadsheets to maintain a mix of volume and gross profit. Think about getting rid of any malingerers now. Now is also a good time to join an association such as the NAHB to capitalize on the collective wisdom of its member companies and to join a peer network group either officially through the Remodelor 20 program or unofficially at lunches, local meetings or that Remodelers’ Show in Atlantic City.

The value of networking is that many of the people you meet might have already faced the decisions you will face and can tell you how it turned out and what they might have done differently. As my father always said, "Son, you had better learn from others’ mistakes as well as yours because you won’t live long enough to make them all yourself." Whichever path you take, bucking the facts and predictions or being flexible about your product mix, don’t do it alone.

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