Luxury returns to the American home
Karl Fendelander | Improvement Center Columnist | December 17, 2012
After some of the roughest economic times in our country's history, things are looking up in homes across America. Luxury and large-scale remodeling projects are on the rise and projected to grow, according to the recent findings of not one but four different and distinct agencies. The National Association of Homebuilders (NAHB) reports remodeling project levels not seen since 2005. A study from RemodelOrMove.com found remodeling rates surpassing pre-recession numbers. Both the Leading Indicator of Remodeling Activity (LIRA) from Harvard University's Joint Center for Housing Studies and real estate firm Hanley Wood's Residential Remodeling Index (RRI) are forecasting big-number growth for the remodeling industry in early 2013. In short, big remodels are back, and America is getting its luxury fix on.
Why we can have nice things
Every luxury remodel has its own story, of course, but taken together, the relatively sudden boom in these large-scale projects bodes very well for the economy and people's faith in it. As Jonathan Smoke, executive director of research for Hanley Wood, puts it, "improving housing conditions are clearly buoying consumers to feel confident about making improvements in their homes that they may have postponed for several years," and he's not alone in this assertion. NAHB remodelers chairman George Moore Jr. said recently that "homeowners are investing in remodels as home prices stabilize. As owners become more confident that investments in housing will hold their value, they are beginning to undertake projects to improve their comfort that they had been putting off."
Notably, the RemodelOrMove.com study found that respondents' homes were valued at $100,000 on average, just a few thousand shy of the average $113,000 estimated price tag of a "dream home" that fulfilled all of their wants and needs. With respondents' homes so close to meeting their ideal, at least in value, is it any wonder that remodeling is seeing growth? The stability of the market is allowing homeowners to see these remodels as investments, rather than simply nice-to-have improvements. "Combine that with aging homes and aging boomers, and you get a recipe for strong growth in remodeling and replacement well into the future," said Smoke.
Behind the numbers: remodeling market ratings
Just what does growth in this industry look like? Here are some hard numbers and looks at the methodology behind the aforementioned rankings:
Remodeling Market Index (RMI). Based on feedback and company data from remodelers across the country, the NAHB's RMI is like a finger on the pulse of the remodeling market -- a pulse that's quickening. As of late October 2012, the RMI is at its highest point since the third quarter of 2005. The rating is essentially the percentage of the remodelers reporting positive market changes over the previous quarter in a variety of areas, which are averaged for the main index. When the rating is over 50, more than half of the respondents are reporting growth. In the latest release, the RMI climbed to 50 (up from 45 in the previous quarter). Maintenance and repairs hit 56 (from 50), minor additions and alterations 51 (up from 47) and major additions and alterations 49 (from 42).
2012 U.S. Remodeling Sentiment Report. RemodelOrMove.com's annual study focuses on homeowners -- roughly 5,000 for each survey. The latest findings are significant:
- The scope and scale of remodeling projects is the largest it's been since 2007, with average number of rooms that users plan to add or remodel as well as the average cost of the project both growing considerably.
- Homeowners described their remodeling materials as "expensive" at the highest rate since 2008, indicating a growing preference for luxury products.
- Another throwback to 2008 levels, 35 percent of respondents reported that the economy is not affecting their plans to remodel.
- The highest percentage of respondents since the report started in 2006 -- 73 percent -- said they are planning on hiring a general contractor.
Making sound luxurious investments
Across the board, both current and in-the-works home remodeling projects are moving away from the strictly practical to the large-scale and luxurious. Thanks to increased confidence in the housing market, these projects can be seen as sound investments rather than frivolous ones. RemodelOrMove.com's study found that kitchen remodeling beat out bathroom remodeling for the first time since 2008, showing the move from smaller and more practical projects to larger, more lavish ones deemed too risky or unnecessary during uncertain economic times.
These growth figures point to an America ready to once again invest in personal luxuries at home, an America confident in the housing market and taking pride in home ownership -- an America fixing things up and living well.