Custom Contracting recently renovated this kitchen in a contemporary-style home in Lincoln, bumping out a back wall and adding granite counters and custom cabinets. The National Association of Home Builders reported that remodeling activity slowed during the last quarter of 2002.
2002 has been dubbed the year of the hearth and home by some of the nation’s homebuilders as low mortgage interest rates and rising property values spurred people to take on home improvement projects or purchase new houses.
But with the economy barely sputtering along, remodelers could start feeling the pinch on business this year. Already, remodeling activity showed signs of slowing down during the last quarter of 2002.
Remodelers across the country reported a fairly weak amount of activity at the end of last year, according to the National Association of Home Builders’ Remodeling Market Index, and industry watchers say they aren’t expecting an instant recovery.
In Massachusetts, local home improvement contractors and remodelers say that while the volume of work and phone calls from prospective clients hasn’t slipped, they’re dealing with smaller projects, instead of large-scale remodeling.
“It’s slowed down a little bit but it doesn’t seem to have gone away by any means,” said Finley H. Perry, owner of F.H. Builder in Hopkinton and last year’s president of the Builders Association of Greater Boston. Perry’s company, however, has a six-month backlog of contracted projects.
Bob Ernst, the president of the Remodelers’ Council of Greater Boston and a partner at FBN Construction in Hyde Park, said that activity has actually picked up at his company during the last three weeks. The company has received twice as many calls from clients who want to get a jumpstart on spring home improvement projects, but the size and the value of the jobs has gone down, explained Ernst.
“People are not spending quite as much money,” said Ernst.
Less than two years ago, the Joint Center for Housing Studies at Harvard University released a report on the strength of the remodeling industry nationwide. The report revealed that people in Massachusetts spent a considerable amount on remodeling.
The Boston region was cited as being among the top 10 areas for remodeling spending. Major metropolitan areas in the Bay State – such as Greater Boston, Worcester, Lawrence, Lowell and Brockton – ranked eighth among the top 35 metro areas where homeowners spent the most on remodeling.
In addition, the report predicted that spending on remodeling would remain at about the same strength for at least the next decade. But the report was released before the Sept. 11, 2001, terrorist attacks and prior to the economic nosedive that has chipped away at consumer confidence and pushed people into the unemployment line.
“Sept. 11 was a real monkey-wrench in the flow of work coming in,” said Shawn McCadden, owner of Custom Contracting Inc. in Arlington and one of the founders of the Design/Build Institute in Burlington.
Many remodelers reported that projects were canceled immediately after the terrorist attacks, explained McCadden. One contractor that McCadden knows lost $500,000 worth of signed contracts immediately after Sept. 11.
Today, McCadden said a remodeler’s activity level depends on the market and the niche he is serving. Remodelers who work in more affluent communities and are taking on bigger projects report that they’ve got plenty of work – although a lot of the work was scheduled months ago and can take longer to complete, he said.
On the other hand, remodelers who handle smaller projects, like a bathroom renovation, for example, are saying that business has dropped off. But they’re getting more calls and inquiries from prospective clients who want renovations done down the road, he said.
If business does decline, some remodelers will opt to reduce their estimates to remain competitive and attract more clients. However, McCadden said instead of cutting prices, home improvement contractors may need to restructure their business to focus more on marketing and selling their services.
“A good majority of remodeling companies don’t have sales training,” said McCadden, whose Design/Build Institute runs educational programs for contractors and homeowners. “There are plenty of people who can do great work but they don’t have the expertise to sell their work.”
If the economy doesn’t improve, McCadden predicts that will affect the remodeling industry in two ways: More people who are laid off might decide to try their hand at remodeling. At the same time, those who have been in the business only a short time and haven’t had to weather an economic downturn, as the more experienced contractors have, may leave the business.
The ultimate result, though, will mean that more consumers will be disappointed by the work that’s done and by projects that take longer to complete and run over budget. “If the economy dips and more nonprofessionals come into the industry, I wouldn’t be surprised to see the disappointment level go up,” said McCadden.
TV and Magazines
The NAHB Remodeling Market Index, which was released in late January, showed that remodeling activity nationwide slowed in late 2002 when compared to prior months and the same period in 2001. According to industry leaders, however, it’s not unusual for remodeling to drop off during the holidays and winter season when customers are preoccupied with other concerns.
The association’s RMI is based on a quarterly survey of more than 600 professional remodelers, who are asked a series of questions. The first index gauges current market conditions and is based on remodelers’ reports of major and minor additions and alterations, maintenance work and repairs. The second index gauges expectations for the future, based on remodelers’ reports of their calls for bids, amount of work committed for the next three months, job backlogs and appointments for proposals.
Both indices fell substantially in the fourth quarter of 2002, in comparison to the previous quarter. Year-over-year comparisons also showed a decline, although it was a more marginal drop when compared to the quarter-to-quarter results. The index gauging current market conditions was 43.2 at the end of 2002, down 6.6 points compared with the previous quarter. The index stood at 45 at the close of 2001.
The index showing future expectations fell 9 points to 39.1 at the end of 2002 compared with the third quarter, and was 4 points below where the index stood at year-end 2001.
Ernst said he recently attended a national builders conference and said that remodelers in attendance talked about experiencing a rebound in business. Yet, they’re still “cautiously optimistic” about the future of the market because of the economy, said Ernst.
“They know that it’s not supposed to be going as well as it is,” he said.
Remodeling activity has been very strong during the last several years. According to Perry and Ernst, the remodeling industry was boosted in part by the proliferation of home improvement magazines and even television programs that feature upscale remodeling projects. Many people whose wealth grew during the 1990s chose to invest their newly acquired money in their homes.
“It’s been a great boon [to] our industry,” said Ernst, referring to the increased media attention on remodeling.
In Massachusetts, in particular, where the housing stock is much older, home remodeling has been an attractive alternative to searching for a new house. Finley said there aren’t enough newly built homes to meet demand and land and home prices are so high that many homeowners and buyers choose to remodel instead.
Homeowners in Massachusetts are also more likely to remodel instead of tearing down and rebuilding a home, because there is a strong tradition of preserving architecture in this state, said Perry, who pointed out that many communities have historic districts.
According to NAHB, some factors that have helped keep remodeling activity strong and may continue to do so in future months are rising home prices and the lower mortgage interest rates.
“Factors such as rising homes values, which give people more equity to borrow against for home improvements, plus stellar financing conditions, will continue to drive professional remodeling in 2003,” said Bill Owen, chairman of the NAHB Remodelers’ Council, in a press release.
