Qualified Remodeler Magazine

OCT 2018

Qualified Remodeler helps independent remodeling firms to survive, become more professional and more profitable by providing must-have business information, namely best business practices, new product information and timely design ideas.

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Page 22 of 67

has diminished. Today, existing-home sales sit at approximately 5 million units annual- ly, and it is set to grow at a tepid 2 percent over the next two years, says Lawrence Yun, chief economist for the National Association of Realtors (NAR). Others are less optimistic about home sales. JBREC is forecasting a net loss of existing-home sales over the next few years, as home prices continue to rise and a lack of mobility continues shake things up. "We're in this situation where existing- home sales is clearly negative, yet we're seeing really impressive growth. And I think what we're discovering is that, in all the other cycles, existing-home sales was tied to the whole overall housing market," explains Todd Tomalak, senior vice president with JBREC. "We're seeing that existing-home sales is slow- ing down because people aren't moving as much. We're seeing this lock-in e‰ect. But as long as there's home-price appreciation and wage growth, remodeling remains strong." MARKET POSITIVES TO CONSIDER Še remodeling and home improvement market is big and growing. Conventional wisdom from last month's HIRI gathering is that momentum will carry it forward for the next several years—even at a time when the larger economy is likely to cool down from its decade-long boom. What follows is a list of factors from John Burns Real Estate Consulting and others that bode well for remodeling. Real median income Not only has there been a big growth in the number of jobs in the economy, which has pushed the unemployment rate to record lows, but real wage growth is inching up. JBREC's remodeling forecast assumes a 1.5 percent real income growth in 2018. Šey estimate that each 1 percent increase in real median in- come drives 2.1 percent higher spending per big project remodeling (projects over $5,000) and 2.9 percent more small project remodels (projects under $5,000). Home-price appreciation Še vast majority of metro markets in the United States have fully recovered from the Great Recession. Chicago and other mid- western markets are notable exceptions, but they too are nearly back to peak levels of home prices. Še JBREC forecast includes an assumption of a 6.2 percent home-price appreciation in 2018 and a 4.6 percent rate in 2019. Šey estimate that each 1 percent of real appreciation drives 1 percent incremental higher average project size for both big and small projects, as well as a 1 percent increase in average small project spend per remodel. Age of housing stock In the shift from being a predominantly new-construction-based housing market to one more in balance with remodeling and repair, the aggregate age of the country's housing stock is rising. Plenty of research from Harvard and JBREC links remodeling and improvement activity with aging stock. It has been shown, for example, that homes more than 45 years old are often in desirable neighborhoods and require some very large budget projects for both systems and improve- ments. According to JBREC, 65 percent of the 77 million owned homes will be 30-plus- years-old in 2019. Šey estimate that 24-year- old homes have the most remodels and that spending per remodel rises about 0.3 percent per year after the age of 30 years. HELOC lending Funding for remodeling projects is changing. New companies like SoFi and GreenSky are making unsecured loans in amounts upwards of $50,000. Še more traditional number to About our contributors The remodeling market in 2018 is red hot, and it is expected to stay that way for the next few years. The underlying factors will switch from renters to owners and from bigger projects to smaller projects. (Note: includes labor and materials) Sources: John Burns Real Estate Consulting, LLC; U.S. Census, CTBUH $400 $350 $300 $250 $200 $150 $100 $50 $0 2007 $284.9 $270.5 $233.1 $215.0 $247.1 $237.3 $240.3 $265.4 $282.4 $303.8 $344.6 $372.7 $379.1 $396.2 $393.4 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018P 2019P 2020P 2021P Remodeling Spending, $Billions BURNS RESIDENTIAL REPAIR AND REMODEL SPENDING™ n Small project discretionary n Big project discretionary n Disaster repairs KERMIT BA KER – Mr. Baker runs the Remodeling Futures Program at Harvard University. TODD TOM A L A K – Mr. Tomalak is SVP at John Burns Real Estate Consulting, focusing on remodeling activity. L AW RENCE Y U N – Mr. Yun is chief econ- omist for the National Association of Realtors and is a housing expert. QualifiedRemodeler.com QR October 2018 23

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