2011 Remodeling Activity May Be Flat: Hanley Wood
The company’s latest Residential Remodeling Index (RRI), released yesterday, showed the national level of remodeling project activity remained flat in the fourth quarter of 2010 relative to the previous quarter.
The first half of 2010 indicated remodeling activity was on the rebound from the bottom seen in the last quarter of 2009, and showed the first improvement since the beginning of 2007. The RRI measured the peak to trough for remodeling activity at a decline of 20 percent, but the last two quarterly readings of the RRI indicated that the recovery stalled.
Hanley Wood is now forecasting remodeling activity to remain effectively flat at current levels in 2011 before recovery begins in earnest in 2012 – although that outlook may change for the better in the next few months.
“Our updated forecast for remodeling is conservative because our model did not see a rise in activity in the fourth quarter of 2010 and our local market economic forecasts have yet to reflect improved expectations for local economies in keeping with recently revised macro expectations for the U.S. GDP.” said Jonathan Smoke, Hanley Wood’s executive director of research. “The national numbers mask the fact that many markets now have improved expectations for ending 2011 with more activity than 2010.
“We are seeing significant differences in activity and expectations for local markets in 2011 that get averaged out in the national numbers. Our top ranked markets are performing better than the national average, and some markets are seeing increases in activity already,” Smoke adds. “For example, our top five markets, based on expectations for 2011 and market demand, are Minneapolis, Houston, Dallas, Austin and Denver. These markets all have levels of activity that are recovering towards their 2007 market peaks, and they also have very deep potential demand.”
The seasonally adjusted fourth quarter 2010 national composite of the RRI registered a score of 80.75, which was a decline of 0.7 percent over the slightly upwardly revised third quarter result of 81.3. The change was not statistically significant; for the last two quarters of 2010, remodeling activity remained above the levels in 2009 but failed to show improvement.
“2011 seems to be starting with better expectations for the economy than we’ve seen for the last three years,” Smoke says. “If that ripples into improving consumer confidence, I wouldn’t be surprised if our first-quarter 2011 results come in better than our current forecast, which will raise our expectations for the rest of the year.”
The RRI is a quarterly measure of the level of remodeling activity in 366 metropolitan statistical areas (MSA) in the U.S., with the national composite reflecting the national level of activity. “Activity” includes home improvement and replacement projects, but does not include maintenance or projects of less than $500.
The seasonally adjusted index shows the relative level of activity in the geography specified (MSA or national composite) compared to 2007 (the baseline year). A number above 100 indicates a level of remodeling activity higher than the level of activity at the beginning of 2007, which was the peak of remodeling activity in the prior decade.
The index is produced through a statistical model that leverages detailed data on remodeling activity, including household level remodeling permits, and consumer reported remodeling and replacement projects. Quarterly historical results for the national composite and for each of the 366 MSAs are available back to 2004.
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