Spending nationwide on home improvement, which likely topped $300 billion last year, could easily exceed in 2015 the record of $324 billion set during the peak of last decade's housing boom, the Joint Center for Housing Studies (JCHS) of Harvard University suggests in a new report issued today.
But remodeling's future won't be like its recent past, JCHS predicts in "Emerging Trends in the Remodeling Market," a major report it issues every two years. Among those differences:
- Generation X and millennials have different home improvement priorities than baby boomers.
- The home improvement industry is recovering from the pummeling it suffered during the housing crash and is repositioning itself.
- High-income metro areas are re-emerging as leaders in home improvement spending.
The homeowner improvement market--a category that includes both improvements and maintenance spending by both owners and rental companies--fell only 13% from its peak of $324 billion in 2007 to its low point of $281 billion in 2011. In 2013, spending jumped to $298 billion.
The report didn't estimate 2014 spending, but separate JCHS presentations suggest the number topped $300 billion. And as for this year, the new report declares: "While homebuilding is many years away from a full recovery, the home improvement industry could easily post record-level spending."
The share of homeowners' home improvement dollars that went to discretionary projects rose in 2013 for the first time since 2005 to account for 30.3% of the $192 billion spent, JCHS said.
Baby boomer were involved in 48% of the homeowner spending in 2013, in part because they had more equity in their homes following last decade's housing crash and because the crash forced them to stay in their current homes and at work longer than they might have otherwise. (Homeowner spending typically drops the longer one is retired.) They are likely to spur demand for renovations that will enable them to age where they are; putting a bedroom on the first floor is one example.
As baby boomers age, look for members of generation X (born 1965-1984) will play a much bigger role, while millennials (born 1985-2004) will start to flex their spending muscles.
"The number of native-born members of the millennial generation already equals the number of births of the baby-boom generation," JCHS wrote. "By 2025 when millennials are more fully engaged in the housing market, immigration is expected to have increased their numbers to more than 86 million. This will make the millennial generation almost 7% larger than the baby-boom generation at comparable ages."
Those millennials "will eventually give a dramatic lift to home improvement spending, " JCHS said. This is happening already among property owners who are updating rental units. Later, it should reverse the long-term slide in the do-it-yourself market. And younger households' interest in sustainable home improvements should lead to upgrades for energy-efficiency and greater use of renewable or recycled materials, the Harvard group believes.
The number of general residential remodeling firms with payrolls sank by 8.4% from 2007 to 2011, when it totaled just 79,600 businesses. But by the middle of last year it had rebounded to 83,200 firms. Meanwhile, job growth has climbed 20% from the market low to reach 282,000. Still, that remains 9% below the peak, and the share of general remodeling firms with fewer than five employees grew to 84% in 2010 from 81% in 2007.
"Clearly contributing to this growing fragmentation, although difficult to quantify, is the increased presence of single-family home builders in the remodeling market since the housing crash," JCHS said.
The report noted that construction and extraction company employees have one-twentieth the share of female employees, half the share of people with education beyond high school, and two-thirds higher share of foreign-born workers than do workers at all types of companies nationwide.
This matters, JCHS said: "The general concern is that the construction sector might have difficulties securing the labor force it needs if it cannot broaden its hiring to include more female, college-educated, and native-born workers." No wonder the share of the construction workforce aged 55 and over rose to 16% in 2013 from under 9% in 2002., while there has been a nine-point drop in the share of workers under age 35.
Remodeling is largely urban work; homeowners in metropolitan areas account for 80% of all such spending. Even given that, improvement expenditures vary dramatically across metro areas, especially on larger discretionary projects, JCHS said. In general, owners on both coasts spend more on home improvements than do their counterparts in the nation's heartland.