Homebuilding and Remodeling: When Will We See a Recovery?
November 5, 2010

The industry knows the homebuilding and remodeling markets are down, but the big question is this: when will we see a recovery? Kermit Baker, chief economist for the American Institute of Architects, sought to answer that question during the recent McGraw Hill Construction Outlook Conference. Baker cited a number of things that must happen before the market turns around, and offered a few predictions. Among them: market recovery will begin at the lower end of the price spectrum-the industry will not likely reach long-term production trend until 2013 or 2014; and home improvement recovery will occur in the fourth quarter of 2010 and is expected to pick up steam moving into 2011. He added that renovations of distressed properties and energy retrofits will pace the turnaround.

A key indicator in a housing recovery is for sale vacant homes and Baker said "these are modestly improving." He added that this has been offset by vacant rentals and that there are still "at least a million rental units to work off."

Other challenges, said Baker, are low household growth and home ownership rates.

"Home ownership is a much bigger risk than we thought," he said. "Some households may look to rent and because of that we won't see a lot of movement in home ownership rates."

He also said that a surprising thing is happening in the industry in regards to home sales (or lack of them).

"You have house prices that are very affordable and mortgage rates that are at their lowest we will probably see [in our lifetime] but yet people still aren't buying. I think a lot of folks are ready to buy, but are waiting to see if they will go lower. In that respect I think the Fed may be doing a disservice. Once people know we have hit bottom they will start buying."

As far as remodeling market predictions, Baker reported that after growing in the first quarter, planned improvement spending has eased with some exceptions.

"Recent buyers of distressed properties are spending more on remodeling," he said.

"The leading indicator of remodeling activity has been bumping along near the bottom with some growth expected at the end of this year and continuing into next year."

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