ORLANDO — Last year was "a tough year for remodeling, and 2008 will be every bit as tough," an industry expert told an audience of contractors last month at the International Builders Show. In an effort to cheer them up, he said, "It could be worse: You could be home builders."
Tampa Bay area remodeling contractors agreed with speaker Kermit Baker, director of the Remodeling Futures Program at Harvard University, that after white-hot years in 2005 and 2006, last year was when they noticed softening in the market.
Baker's research showed that the top of the remodeling market is where slowdown has taken hold. "Households see a better value in modestly priced remodeling projects," he said.
That doesn't hold true around here, local remodelers say. "The ones with the money are the ones doing it now," said David Mueller of Mueller Remodeling in Largo.
"It's the people who are pretty well set" who are moving ahead with big remodeling projects, agreed Wes Jenkins of Blue Diamond Builders in Largo, president of the Tampa Bay area chapter of the National Association of the Remodeling Industry. "It's the people in the median income levels who are not pursuing" projects. "They're looking at bids but not accepting them as quickly as they did in the past."
Whether the slowdown is in the big-ticket projects or the more modestly priced ones, here's the trajectory as outlined by Baker. The prime time when people start a remodeling project is when they buy a house. Fewer housing sales — which is what we're experiencing now — means fewer remodeling projects.
Further, weak housing prices give homeowners less incentive to remodel: Why overimprove? With paper gains in equity disappearing, those who might have financed a remodeling project with a home equity loan find there's less money to draw on. Lenders have tightened their requirements. And the annual Remodeling magazine Cost vs. Value Report shows a smaller payback, another disincentive to start ripping out walls and making sawdust. (For details, visit www.remodeling.hw.net.)
In 2006, the last year for which figures are available, residential remodeling was a $228.2-billion business that had doubled since the mid 1990s, the National Association of Home Builders reports. Household spending on remodeling in the South rose to $1,566 from $1,131 between 1996 and 2006.
The Leading Indicator for Remodeling Activity, a measure developed by the Joint Center for Housing Studies at Harvard, where Baker's program is based, predicts that homeowner spending for home improvement activity will continue to decline, falling by an annual rate of 2.6 percent through the third quarter of this year (details at www.jchs.harvard.edu). This week Home Depot announced its first-ever annual sales decline. Revenues for last year were $77.4-billion, down from $79-billion in 2006.
"There's little likelihood this market will change before the end of 2008," Baker said, striking the same gloomy note other speakers sounded during the convention.
"Things are not as robust as they were 18 months ago," said Daniel E. Ashline, whose St. Petersburg remodeling company bears his name. "It's not like it was . . . 2005 was still good, and 2006 was better, but last year was just even. This year we'll do 70 percent of what we normally do."
Permitting made easy
If there's a silver lining to the cloud, Ashline said, it's the speed and ease of getting permits now that municipal building departments aren't overwhelmed, as they were during the go-go years. "It's like having your own personal building department," Ashline said. He said that building departments, which had to scramble to find enough licensed plans examiners a few years ago, are struggling to hold onto them now that demand has dropped.
Jenkins, of Blue Diamond, said his business is "off by 50 percent, easily." This time last year "we were in the process of doing $500,000 to $600,000 worth of work," mostly in contracts written in 2006. "Now I've got $200,000 worth of work sold for this year." He anticipates "a good year before things clear out," but has had to lay off three people since the days when "everybody was going with full guns blazing. We'll survive, we just have to tighten the belt."
Both Baker and Gopal Ahluwalia, the chief statistician for the home builders, say it will be 2009 before the remodeling industry picks up. Ahluwalia estimates that from then through 2016 the industry will "grow at a steady rate" to $369.3-million.
Baker's advice to remodeling contractors: Don't yield to desperation and underbid jobs. Diversify your projects and your clientele. Sell your strengths as experienced contractors who will be here next year.
And focus on the economic stimulus package signed by the president in February. "Target that market," he said, and start encouraging homeowners to spend those checks on remodeling projects.
Judy Stark can be reached at email@example.com or (727) 893-8446.