Remodeling Market Trends and Update Kermit Baker Remodeling Futures Conference April 13, 2010 www.jchs.harvard.edu
Remodeling Market Issues 1. Falling levels of home equity are slowing industry recovery. 2. Households with limited home equity and low mortgage rates creating a lock-in effect that will slow mobility for years to come. 3. Lead paint rule presents tricky implementation problems; Homestar program likely to provide minor boost for energy efficiency projects. 4. Stronger sectors remain: older households; cash financed projects; pro installations. www.jchs.harvard.edu
Owners Equity in Their Home Has Declined by Over Half Since 2006 High Owner s equity in real estate (trillions of $) $15 $10 $5 $0 2005-1 3 2006-1 3 2007-1 3 2008-1 3 2009-1 3 Source: Federal Reserve Board Flow of Funds Accounts.
As a Result, Home Equity Loans are Off Almost 10% Over Past two Years Home equity loans (billions of $) 1,200 1,000 800 600 2005-1 3 2006-1 3 2007-1 3 2008-1 3 2009-1 3 Notes: Includes loans made under home equity lines of credit and home equity loans secured by junior liens. Source: Federal Reserve Board Flow of Funds Accounts.
Almost a Quarter of All Mortgaged Homes are Under Water, With Many More at Risk Number of mortgaged homes nationally, Q4 2009 2008 share All mortgaged homes 47.6 mill. 100% Negative equity mortgages 11.3 mill. 23.8% Near negative equity mortgages* 2.3 mill. 4.9% * Near negative equity defined as properties within 5% of being in a negative equity position. Source: First American CoreLogic.
Areas with High Share of Loans Underwater Heavily Concentrated in Overbuilt Markets Top and Bottom 10 Metro Areas for Negative Equity Share, Q4 2009 Note: Sample includes top 50 Census Bureau Statistical Areas (Metropolitan Statistical Areas and Metropolitan Divisions) by number of active mortgages that have markets with 50,000 or more loans. Source: First American CoreLogic.
The Recent Sharp Decline in Mobility Pre-Dates the Recession
Steepest Declines in Net Domestic Migration Centered in Fast-Growing Sunbelt Cities Difference in net domestic migration, 2009 vs. 2006 (000s) *Hurricane Katrina caused a large movement of people from New Orleans to nearby areas such as Baton Rouge. Notes: Sample includes top 50 largest populated metropolitan statistical areas as estimated in 2009. Change in net domestic migration from 2006 to 2009. Source: U.S. Census Bureau.
Given High Level of Originations Recently, Mortgage Rates for Most Owners at 6% or Less Originations as share of all loans by year; average mortgage rate for year 40% 36.7% Mortgage originations as share of total outstanding 10% 30% 5.9% 29.9% 6.4% Interest rate, conventional 30-yr mortgages 6.3% 23.2% 6.0% 20% 19.5% 5.0% 5% 15.3% 10% 0% 2005 2006 2007 2008 2009 0% Notes: Mortgages Originations Share may be overstated due to double counting (i.e. multiple refinancings). Source: Freddie Mac, Federal Reserve Board, Haver Analytics.
On the Eve of Implementation, Many Remodelers Unfamiliar with Lead Paint Regs. Familiarity with EPA s lead paint renovation, repair, and painting rule, % of remodelers Not at all familiar, 24% Very familiar, 25% Somewhat familiar, 51% Source: JCHS National Green Remodeling Survey, March 2010.
While Most Plan to Undertake Projs. Requiring Lead Paint Certif., Few Plan to Specialize Firm s plan to target projects requiring lead paint certification, % of firms Don't know / N.A., 14% Specialize, 2% Avoid, 29% Undertake as arise, 55% Source: JCHS National Green Remodeling Survey, March 2010.
Energy Efficiency Rebate Program Expected to Have Modest Impact on Spending Estimated change in homeowner spending, % of remodelers Sign. increase (>25%), 13.0% No change, 13.0% Mod. increase (10%-25%), 38.0% Small increase (<10%), 36.0% Source: JCHS National Green Remodeling Survey, March 2010.
Homestar Energy Efficiency Retrofit Program Goal: Lowering national energy consumption and creating jobs by increasing demand for energy efficient products thru provision of rebates to homeowners. Procedure: point-of-sale rebates from dealers, retailers, contractors, and utilities. Products covered: insulation, duct sealing, water heaters, HVAC units, windows, doors. Funding around $6 billion for fiscal years 2010-2011, with around $3 billion for product rebates. Status similar House and Senate bills filed with bipartisan support.
Homestar Rebates Could Total About 10% of Market in Covered Categories Market spending, estimated program rebates Project category Windows/doors Insulation HVAC Annual market spending (billions of $, 2007) $12.9 $2.4 $13.2 Estimated Home Star rebate allocation (billions of $) $1.3 $0.2 $1.3 Sealing* Total $2.2 $30.6 $0.2 $3.1 (10% of market spending) * Estimated from experience in Minnesota s Project Re-energize. Source: Joint Center Estimates from Congressional proposals and 2007 American Housing Survey.
Estimated Remodeling Spending Market Has Fallen Almost 20% From 2007 High Billions of dollars $350 326 $300 280 52 272 $250 210 229 49 43 $200 $150 $100 $50 149 41 108 161 40 121 180 44 136 57 48 162 172 231 274 228 $0 1995 1997 1999 2001 2003 2005 2007 2009(e) Owner-occ. homes Rental units Sources: JCHS tabulations of the 1995-2007 American Housing Surveys (AHS) and the US Department of Commerce Survey of Expenditures for Residential Improvement and Repairs (C-50 reports). 2009 estimate base on JCHS LIRA.
Tracking Recent Home Improvement Trends: NPD/HIRI Monthly Consumer Sentiment Index National monthly survey of about 13,000 households (9,000 homeowners) on home improvement plans, with data released early the following month; Number of planned projects, estimated cost, DIY/pro installation, and expected financing information collected; Over 150 home improvement, maintenance and repair, and lawn and garden categories covered each month in survey;
Homeowners Planning on Increasing Spending on Home Improvement Projects 15% Three month moving averages compared to year-ago level for planned level of spending by owners 10% 5% 8.9% 7.2% 0% 4.3% -5% -2.4% -10% -6.2% -8.4% -15% -20% -11.8% -10.0% -9.3% -11.7% -15.6% -17.5% -11.7% Mar'09 Apr May Jun Jul Aug Sep Oct Nov Dec Jan'10 Feb Mar (e) Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; February estimate based on January and February data only. Source: JCHS tabulations of the Home Improvement Research Institute s monthly Consumer Sentiment Tracking Study, Feb. 2008-Mar. 2010.
Planned Spending by Older Owners Exceeds That of Their Younger Counterparts Three month moving averages compared to year-ago level for spending by owners for planned home improvement projects by age of respondent 40% 30% 20% Under 45 65+ All 10% 0% -10% -20% -30% -40% Mar'09 Apr May Jun Jul Aug Sep Oct Nov Dec Jan'10 Feb Mar (e) Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; February estimate based on January and February data only. Source: JCHS tabulations of the Home Improvement Research Institute s monthly Consumer Sentiment Tracking Study, Feb. 2008-Mar. 2010.
Planned Kitchen, Bath and Room Addition Projects Have Begun to Recover in Recent Months Three month moving averages compared to year-ago level for spending by owners for planned home improvement projects by project type 20% 10% Kitchen, Bath, Room Additions & Alterations Exterior Replacements All Projects 0% -10% -20% -30% Mar'09 Apr May Jun Jul Aug Sep Oct Nov Dec Jan'10 Feb Mar (e) Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; February estimate based on January and February data only. Source: JCHS tabulations of the Home Improvement Research Institute s monthly Consumer Sentiment Tracking Study, Feb. 2008-Mar. 2010.
Planned Spending on Professional Projects Generally Outpacing Do-It-Yourself Activity Three month moving averages compared to year-ago level for spending by owners for planned home improvement projects 15% 10% 5% Pro DIY Total Pro & DIY 0% -5% -10% -15% -20% Mar'09 Apr May Jun Jul Aug Sep Oct Nov Dec Jan'10 Feb Mar (e) Note: Monthly figures are 3-month moving averages centered on reported month and normalized per 100,000 responses; February estimate based on January and February data only. Source: JCHS tabulations of the Home Improvement Research Institute s monthly Consumer Sentiment Tracking Study, Feb. 2008-Mar. 2010.
Leading Indicator of Remodeling Activity Points to Healthy Recovery as Year Progresses Homeowner Improvements Four-Quarter Moving Totals Billions of $ Four-Quarter Moving Rate of Change $150 $145 $140 $145.8 $146.2 $144.2 $139.1 40% 30% $135 $133.0 20% $130 $125 $120 $115 $110 $105 6.8% 3.1% -0.1% -4.0% -8.8% $125.7 $121.0 $120.1 $118.2 $118.1-6.1% -11.1% -14.0% -13.6% -16.1% -5.4% $114.5-3.6% $115.8-6.7% $110.3-9.7% $106.5-3.1% $111.0 4.9% $121.5 10% 0% -10% -20% $100 2007-1 2 3 4 2008-1 2 3 4 2009-1 2 3 4 2010-1 2 3 4-30% US Census Bureau LIRA Source: Joint Center for Housing Studies.