Contractors hoping for some market clarity based on first quarter conditions will be sorely disappointed from a quartet of reports that seem to offer mixed signals.
Reports from four different organizations — Harvard’s Joint Center for Housing Studies (JCHS), the National Association of Home Builders (NAHB), the National Association of the Remodeling Industry (NARI), and the American Hardware Manufacturers Association (AHMA) — all took a look at current and future growth expectations but came up with different conclusions. One thing they all seem to agree on: Contractors can expect more growth in the months ahead. However, how much growth to expect is anyone’s guess.
Here’s a snapshot of each report:
1. Harvard’s JCHS. This is the rosiest report by far for contractors. Its newly benchmarked Leading Indicator of Remodeling Activity (LIRA) predicts strongly accelerating growth in home improvement and repair spending heading into 2017. The new and improved LIRA projects that home remodeling spending will increase 8.6% by the end of 2016 and then further accelerate to 9.7% by the first quarter of next year.
“Ongoing gains in home prices and sales are encouraging more homeowners to pursue larger-scale improvement projects this year compared to last with permitted projects climbing at a good pace,” says Chris Herbert, managing director of the Joint Center. “On the strength of these gains, the level of annual spending for remodeling and repairs is expected to reach nearly $325 billion nationally by early next year.”
2. NAHB. The NAHB’s Remodeling Market Index (RMI) posted a reading of 54 in the first quarter of 2016, dipping four points below the previous quarter but remaining in positive territory above 50.
An RMI above 50 indicates that more remodelers report market activity is higher (compared to the prior quarter) than report it is lower. The overall RMI averages ratings of current remodeling activity with indicators of future remodeling activity.
“Remodelers were solidly booked for jobs in the first quarter of 2016 but calls and appointments for work slowed down in comparison to the end of 2015,” said 2016 NAHB Remodelers Chair Tim Shigley, CAPS, CGP, GMB, GMR, a remodeler from Wichita, Kan. “Volatility in the financial markets during the first quarter may have impacted consumers’ readiness to commit to projects.”
But NAHB still predicts “modest” future growth. “Minor declines in the small additions and maintenance categories coupled with a slight uptick in major additions resulted in a flat outcome for current market conditions,” said Robert Dietz, NAHB chief economist. “While the future market conditions of the index dipped slightly, we still anticipate modest growth in the remodeling industry over the course of 2016.”
3. NARI. The first-quarter 2016 NARI Remodeling Business Pulse (RBP) of current and future remodeling business conditions point to growth, but, again, at a moderate rate. NARI says the softening in the current business is due to difficulty converting bids to jobs and projects being of a smaller size. Some highlights:
- Number of inquiries grew 4.0%
- Requests for bids rose 2.6%
- Conversion of bids to jobs fell 5.4%
- Value of jobs dropped 2.9%
Viewed as a whole, the March RBP shows good continued interest in doing remodeling projects that will lead to moderate growth. Key headwinds from the consumer side include, getting homeowners comfortable with making the decision to proceed and overcoming their resistance to undertaking larger projects, the report concluded.
4. AHMA. The AHMA Home Improvement Industry Confidence Index is a monthly indicator of the economic health and “mood” of the industry based on a survey of its members. AHMA compares it to the Consumer Confidence Index. The index asks manufacturers to rate sales above even or below currently, six months from now and one year from now.
In March, those reporting sales above current levels from the previous year fell from 68% in February to 63%
Those expecting sales to rise above current levels over the next six months fell from 84% to 74%. The numbers were the same looking one year ahead.