Economists from the Associated General Contractors of America, the AIA, and Reed Construction Data addressed the expected length and strength of the construction market’s recovery in a webinar May 3. The private residential sector received significant attention as the discussion evaluated how activities such as remodeling and multifamily as well as foreclosure rates and bank lending would drive a residential market turnaround.
Multifamily construction and remodeling were among the areas in which the economists cited growth. Kermit Baker, AIA chief economist, said that last year’s $300 billion home improvement market accounted for 2 percent of overall U.S. economic activity. Most of this spending attributed to owner-occupied homes, although 15 percent to 20 percent of spending was on rental units, reflecting a sense of permanency among renters. Baker also noted that the AIA’s Architecture Billings Index has held slightly above the 50-point mark for five straight months—driven by, to some extent, a relative influx of multifamily work.
Residential remodeling activity dipped 10 percent to 15 percent compared with the three-quarter drop in home building activity, from which the former was able to grab market share. “We’ve had a serious remodeling downturn but nowhere near as serious as we saw in the housing recession,” Baker said. Since 2009, remodeling activity weighed in at nearly 70 percent of the total residential construction spending market, a spike from its historical average share of 40 percent to 45 percent, he added.
On the whole, residential construction spending is losing market share amid the overall construction market. Reed’s chief economist Bernard Markstein said that the segment totaled 31.1 percent of the construction market in 2011, down from its 55.9 percent share in 2005. “[Home] improvements have helped keep up the overall residential construction spending, but there’s no way to overcome the shrinkage of the single-family market, and that’s where the eyes are,” he said. “It’s struggling mightily.”
Baker called out energy-efficient retrofits as a driver of growth, with the key shift being toward older homes. “New homes in a good year account for only 1.5 percent to 2 percent of the housing stock,” he said. “If we are going to make significant gains, we have to improve older homes.”
Pre- and post-sale remodeling work on distressed properties valued $8.5 billion in 2011, Baker said, fueled in part by a “pipeline” of foreclosed homes re-entering the market. He added that nationwide home improvement spending is expected to increase 5.6 percent this year.
Baker also noted that historical lows in homeowner mobility rates also may be impacting sale-driven home improvement spending, as well as driving younger, potential buyers into the renting market. He added that instability of housing prices, banks reluctant to lend, and a stock of foreclosures still “working their way through the system” all are contributing to homeowners’ hesitancy, or even ability, to move.