2011 March Steps

Step by Step

“Watch your thoughts, for they become words. Watch your words, for they become actions. Watch your actions, for they become habits. Watch your habits, for they become character. Watch your character, for it becomes your destiny.”

-Unknown Published by the Remodelers Council of Lincoln • March 2011

Chairperson’s Message

by Jenny Samek

Spring is in the air! The week of the Home and Garden show gave us some wonderful weather. I think the spring-like temperatures gave everyone Spring fever early this year. From what I’m hearing, this year’s show brought out more people who are serious about doing some projects which is great for everyone.

Thank you to all the volunteers that donated their time to help with the Food Bank House at the Home Show. This year we raised 5,013 pounds of food and collected $21.08 in cash. That’s up 261 pounds from last year. Seeing the framed Food Bank House is a great way for attendees to see how a small donation can really add up. I know my six-year-old had a great sense of pride knowing he was helping.

The Tour of Remodeled Homes is the weekend of April 9-10 and is by far the best way for prospective clients to actually see your work and get ideas. Don’t delay as the registration deadline is Friday, March 4. Don’t miss this great advertising opportunity.

Please join us Wednesday March 2 at Valentino’s North. Our guest speaker will be Brian Hoefer with the Lincoln Police Department.

Since 2003, we have collected over 45,000 pounds of food for the Food Bank.

Special thanks to the many volunteers who helped with this year’s Food Bank House!

10  Lincoln Business Builder

April Meeting Tour of Vantage Pointe Homes

Wednesday, April 6, 2011 • 11:30 a.m.

1000 W. Rokeby Road

May Meeting Tour of Matt Talbot Kitchen & Outreach

Note special start time!!!

Wednesday, May 4, 2011 • 10:30 a.m.

2121 N. 27th St.

Look for more information about these meetings in future emails or your next Lincoln Business Builder.

The video from the Remodeler Council’s Better Business Bureau’s Integrity Award is now online. View it at

www.hbal.org/rc/events/

Step by Step

Remodeling Set to Recover This Year From Most Serious Downturn

Remodeling will be moving into recovery in 2011 following a three-year slump and its most serious downturn since the government began tracking industry activity in the early 1960s, according to economists at the recent NAHB International Builders’ Show in Orlando, Fla.

Kermit Baker, director of the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University, said that a new report from the Joint Center two years in the making indicates that the remodeling industry is set for a new decade of growth.

In the meantime, remodeling has declined roughly 15% from its peak of $326 billion in 2007 to a trough of an estimated $277 billion in 2010, Baker said. However, the sector fared significantly better than residential construction, which suffered a decline of more than 75%.

As a result, the money spent to improve and repair homes moved up last year to command an estimated 70% share of total residential investment, which, in addition to remodeling, includes single-family and multifamily construction. In the decade or so preceding the crash, remodeling accounted for roughly a 40%-45% share, falling to a little more than a third of the market at the height of the building boom in 2005.

Over the coming five years, researchers at Harvard expect inflation-adjusted spending on remodeling to grow at a 3.5% average annual rate in real dollars, slightly above the projected rate of growth for the economy. By comparison, that spending saw a growth rate of 7.3% from 2000 to 2005 and then a -1.4% drop during the second half of the decade.

The industry is getting a lift from the increasing numbers of distressed properties in need of rehabilitation and from a decrease in household mobility. When home owners don’t move, it makes them more amenable to considering projects with longer paybacks, particularly energyefficient retrofits. A spring survey found that purchasers of distressed properties are spending an average 15% more in the first year after the purchase than those who bought nondistressed homes, Baker said.

Over the longer term, “market fundamentals — the number of homes in the housing stock, the age of those homes and the income gains of home owners making improvements — point to increases in remodeling spending,” according to the Remodeling Futures report.

Remodeling will also benefit from the economy and housing returning to more normal conditions because a disproportionate amount of improvements are made shortly after the purchase of a home.

The downturn that the industry is now crawling out of has been characterized by a 23 % drop in discretionary kitchen and bath remodels and other high-end projects and a shift to smaller jobs, he said.

A corresponding trend has been a decline in the share of total

spending from home owners with the top 5% of incomes. That share decreased from 60.6% in 2005 to 52.1% in 2009.

A Bigger Share for Bigger Companies

Looking at the evolving structure of the home improvement industry, Baker reported a trend toward concentration among larger companies in a “notoriously fragmented” industry that will remain characterized by many small businesses that are highly susceptible to failure.

Of the more than 650,000 remodeling contractors in 2007 (up from 530,000 in 2002), one-third were general contractors and two-thirds were trade contractors, Baker reported. Trade contractors grew about twice as fast as general contractors in the 2002-2007 period. In 2007, there were twice as many one-person remodeling firms as those with employees on the payroll.

Among the top 500 remodelers in the country, those specializing in exterior replacements — such as roofing, siding and exterior doors and windows — fared the best during the downturn, with business trailing down as much as 5%, said Baker.

Design-build, which consists of jobs that can be deferred, took the biggest tumble, declining 20% by 2009.

Baker added that failure rates have been high for remodeling firms even when times are good. “Over onethird of the firms with payrolls that were in business in 2003 were not in business in 2007,” he said, “in one of the strongest periods in the history of the industry.”

Among signs of industry concentration, he noted that through 2007, larger firms with more than $1 million in yearly business accounted for 55% of the employees in the industry and 65% of the revenues among companies with payrolls. From 2002 to 2007, the share of industry receipts for the top 50 remodeling contractors rose from 5.2% to 7.9%.

Best-Positioned Markets

Taking a look at where remodelers are likely to fare the best, Baker said that the top markets are located along coastal California and in the Northeast, where home prices and incomes tend to be higher. Average home owner spending in 2000 to 2009, in 2009 dollars, ran to a high of $5,080 in San Jose, Calif., among the 35 metropolitan areas with the largest populations. The lowest average spending

Tour of Remodeled Homes April 9 & 10, 2011

Entry Deadline: March 4, 2011 11  Lincoln Business Builder

Step by Step was $1,240 in San Antonio.

Spending cutbacks have been especially large in markets with high delinquencies, he added.

Looking at favorable market conditions — including higher house value appreciation, higher median household income, older housing stock, higher home values and a large share of upscale remodeling projects — Baker said that metro markets best positioned for a rebound are San Francisco, San Jose, Los Angeles and San Diego in California; and Boston, New York and Philadelphia.

In the second tier, out of five, are Seattle, Minneapolis, Milwaukee, Chicago, Baltimore, Washington, D.C., and Virginia Beach, Va., The least favorable conditions prevail in Las Vegas, Phoenix, San Antonio, Detroit, Atlanta and, in Florida: Tampa, Orlando and Miami.

Also of interest to remodelers, who can expect to derive the most business in areas that are benefitting from domestic migration, Baker identified markets that appear to have reversed the longer-term pattern of population leaving the Northeast and Midwest for the South and West. Both New York and Los Angeles, which experienced sharp net out-migrations in 2006, shifted to significantly slower outward population flows in 2009. Cities that had been losing population but were seeing small gains in 2009 include Washington, D.C., San Francisco and Boston.

Immigrant home owners also represent an important market segment, he suggested, with their spending almost doubling from $10.9 billion in 2001 to $18.4 billion in 2009.

Also, energy-efficiency improvements “have held up better than other categories,” largely because of tax credits, some of which were scaled back by the last Congress at the end of 2010. The percent of remodelers working on energy-related projects jumped from 39% in the third quarter of 2009 to 58% in the third quarter of 2003, according to the Joint Center’s National Green Building Survey, 2009-2010.

Of those who reported in last year’s third quarter that they were working on jobs to improve residential energy efficiency, 97% said those projects included the building envelope, 41% worked on HVAC upgrades and replacements, and 19% were involved in renewable energy systems — including solar, wind, geothermal and fuel-cell technologies.

Responding to a Weaker Market

Among new trends spawned by the downturn, Paul Emrath, NAHB’s vice president of survey and housing policy research, said that prospective remodeling customers have been getting choosier about who they select for their job.

Seventy-six percent of the remodelers surveyed by NAHB in the first quarter of 2010 said that their customers were always, almost always or frequently obtaining multiple bids from contractors. Seventy-five percent reported that more customers were getting multiple bids than two years earlier.

Responding to weaker market conditions, fewer remodelers have been charging fees for submitting an estimate, despite the costs involved. In the same survey, 80% said there was no charge, up from 70% two years previously.

NAHB survey research found remodelers doing kitchen 12  Lincoln Business Builder

jobs dropping from 73% to 52% between 2004 and 2010, room additions “really dropping off” from 57% to 29%; and whole house remodeling down from 44% to 21%. On the other hand, remodelers offering handyman services almost doubled over that period — from 17% to 33% — as remodelers looked for ways to tide their businesses over until the return of better times.

Commenting on another up trend, Emrath cited an NAHB survey in the third quarter of 2009 finding that a median 5% of remodelers reported undertaking jobs for households using energy efficiency tax credits. “That translates into several billions of dollars” in business, he said.

Information by County

Emrath also discussed new NAHB compilations of the Census Bureau’s American Housing Survey data that enable remodelers to find significant information related to remodeling by county. Information includes the number of owner-occupied homes in the county, the married couple share of households, the average value of homes, the housing share built before 1980, the typical-year remodeling volume in the county in millions of dollars; and the average remodeling spent per home.

The county information is being provided to members of NAHB Remodelers free of cost.

For more information on the estimates by county, e-mail Therese Crahan at NAHB, or call her at 800-368-5242 x8211.

For other information on remodeling, contact Kelly Mack, x8451.