RISMEDIA, Oct. 17, 2007-(MCT)-As the housing market shrinks, it might seem unlikely that Naperville, IL contractor Kevin Krueger would find himself with plenty of work on his hands.
After all, home sales and remodeling historically have gone hand in hand. As buyers move in, they tend to fix up and fluff out their new places to suit their style.
But even as the real estate market has hit its slowest streak in years, Krueger said he has had to hire three carpenters in the last six months to keep up with remodeling demand, largely from owners who are spooked by the slowdown electing to improve what they own.
“They’re fixing up and staying,” said Krueger, president of Krueger Remodeling. “I have been inundated with work.”
Krueger’s counterintuitive good fortune probably is not the norm, according to a new study by a home-improvement industry research firm. It found that the nation’s homeowners, expressing doubt about the market, are doing fewer fix-up projects. And they’re holding the glitz.
“The thrill is gone,” said Bruce Forni, a Detroit-based researcher whose firm, TNS-NFO, this summer studied 2,900 homeowners for the Home Improvement Research Institute, a trade group that held its fall meeting in Chicago last week. “Fewer people are saying they’re remodeling because they want the best house in the neighborhood.”
Instead, he said, more utilitarian home improvements, such as organizing the garage, are on the upswing, along with “emergency” jobs, such as fixing a leaky roof.
Forni said the shift may come from homeowners too time-pressed to pay as much attention to their homes as in years past. But it also may be a reflection of housing-market jitters, said Forni, whose company conducted similar studies in 2003 and 2005.
“Home isn’t a safe financial haven any more,” he said. “Homeowners are uncertain about the stability of their primary investment.”
He also said historically low interest rates no longer seem to be spurring as much remodeling. Freddie Mac has reported that the amount of home equity cashed out through refinancing in the second quarter was down about 25% from the year earlier. Forni said consumers tend to have low opinions of interest rates, particularly of adjustable-rate loans and mortgages.
“Maybe they just don’t have the equity to borrow against,” he said.
Credit availability is a critical factor for remodeling, agreed Abbe Will, a researcher with the Joint Center for Housing Studies at Harvard University, which will release its own forecast for the remodeling industry Thursday.
“With credit not being nearly as available as it was, it’s going to affect remodeling in a big way,” Will said.
She said the center will revise downward its quarterly report, called the Leading Indicator for Remodeling Activity. Three months ago, the Harvard think tank was predicting a 3% increase in remodeling expenditures this year, but the Thursday report will project that spending on remodeling will remain flat for the next three quarters
Though the home-improvement institute’s study found a large majority of homeowners said they agreed, at least to some extent, that putting money into their homes “is always a good investment,” they were less confident when asked whether home values would increase in the next two years.
“That’s where it starts to get disconcerting,” Forni said. “They’re not seeing near-term improvement. There could be less confidence in trying to increase the value of their home.”
And where one-third of the consumers agreed that “current economic conditions make me feel good about investing in my home,” 66% said they disagreed or weren’t sure.
The institute, which is funded by dozens of retailers and manufacturers of home-improvement products, forecast in August that U.S. sales of such materials would drop by 1.3% this year, to $308.9 billion. That would be the first such decline since 1991. It also projected that sales to remodeling professionals would decline by 5.1%.
That same month, a survey of remodelers by the National Association of Home Builders found that while major home-improvement projects were declining, remodelers were seeing an increase in small-scale jobs, the trade group said.
Chicago-area home-improvement executives said that they, like Krueger, are seeing business from homeowners who have decided to renovate rather than sell and move up.
At the same time, lumber executive Rick Baumgarten said there is a big segment stuck in neutral, watching to see whether home prices drop.
“Instead of spending $60,000 to do their kitchen or $80,000 doing a room addition, they’re telling themselves that the prices are coming down so much that they may be able to get a home that’s got all those things done already,” said Baumgarten, president of Lee Lumber on Chicago’s North Side.
Business overall has slowed, he said.
“Our sales are down fairly significantly, but primarily that happened in the first four months of the year,” he said. “We took a pounding in January through April, and after that it has been survivable. Was it better last year? Yes, but I’m not tearing my hair out.” South suburban remodeling company executive Jack Philbin said he is hearing some tales of woe.
“I know from talking to many of my suppliers that they’re hurting,” said Philbin, president of Philbin Construction & Remodeling in Crestwood. “One company that deals with insulation and drywall tells me their business is down 50 percent. One of our millwork suppliers is having a strong cutback in staffing, getting back to the nitty-gritty of people.”
Nonetheless, he said, his own business is steady, in part from that “utilitarian” and “emergency” demand noted in the home-improvement institute study.
“There’s still demand, because the housing stock is aging. More houses are getting older every year, and products only last a certain amount of time,” Philbin said. “They wear out and need to be replaced.”
Forni stressed that the consumer survey wasn’t all gloom: The average spending per project is generally even with the amounts reported two years ago, he said.
“Home improvement is still a high-priority category” compared with many other household expenses, he said. “We’re not seeing radical drops in remodeling activity.
“As housing starts to pick up, we’re going to get the home to be the perceived value it once was.”
Copyright © 2007, Chicago Tribune
Distributed by McClatchy-Tribune Information Services.
