There are more than 128 million existing homes in the US. And the median age of an owner-occupied home according to data from the 2009 American Housing Survey was 34 years old, making remodeling a significant part of the economy.
The remodeling industry was $275 B in 2011 representing 1.8% of the GDP according to the Joint Center for Housing Studies of Harvard University. Though down from a high of $328B in 2007, the amount exceeded new home construction. The housing crisis hit the remodeling industry hard, dropping 38% between March 2007 and July 2011 but was small compared to the single family home construction which fell 81% from its peak.
Who does the remodeling?
While do it yourself (DIY) remodeling is part of the picture, it has dropped significantly in the last few years from almost 26% in 2003 to just 18% in 2011 according to Harvard’s Joint Center for Housing. The rest of the industry is fragmented with more than 600,000 specialty and general contractors. According to the Joint Center two thirds of these remodelers are self-employed with very small payrolls. However, NAHB recently surveyed remodelers with an average of seven employees for a Remodelers’ Cost of Doing Business Study. It found that the average remodeler earned about $1.1 M in revenue with 26.8% gross profits and after subtracting operating expenses which includes indirect construction costs, financing, sales, overhead and owners compensation, the net profit was 3.3%.
The Future of Remodeling
I frequently talk with remodelers around the country and they describe the last five years as a roller coaster ride. The phones can ring solidly for a month and then no calls for another month. The calls have become more regular recently and remodelers are bidding on more jobs. But homeowners are still reluctant to sign the contract or they are taking a long time to get to that point. And though the downturn weeded out underperformers, the housing crisis brought new competition, with out of work new home builders entering the remodeling market. The outlook for the remodeling industry remains strong as the housing stock continues to age. And the growth of existing homes sales will add to the health of industry because a lot of remodeling activity occurs immediate before and after the sale of existing home. The NAHB Remodeling Market Index (RMI) reached 50 this last quarter, the highest in five years. And the Joint Center for Housing Studies LIRA predicts double digit growth in 2013 all leading to a bright future for remodeling.
Therese Ford Crahan (MBA, 1990)