2011 Forecast: Remodeling market poised for growth

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While challenges persist, remodelers are more optimistic about the 2011 remodeling market than they’ve been since the housing boom.
That’s according to the latest Professional Remodeler research, which found that nearly two-thirds of remodelers expect their business to grow in 2011.

Optimistic forecast
Sixty-four percent of remodelers say they expect an increase in revenue next year, the highest number we’ve seen in a reader survey since before the housing crash. Forty percent are calling for business to grow by more than 10 percent. Only 15 percent expect their business to decrease in 2011.
That optimism is shared by economists that track the remodeling industry. NAHB is forecasting 5 percent growth in remodeling in 2011, followed by 10 percent growth in 2012.
“The remodeling market typically follows the basic patterns that you see in the rest of the housing market: housing starts, sales, new and existing,” says Robert Denk, an economist at NAHB. “All of those bottomed out in 2009 and are moving up.”
While we won’t see big increases, stabilizing home prices will lead to more people remodeling, Denk says.
“We have seen the big declines are behind us,” he says. “Next year we’ll see a little bit of bumping up and down, with stronger growth as the year unfolds.”
Kermit Baker, director of the Remodeling Futures program at Harvard’s Joint Center for Housing Studies, echoes that sentiment. The Joint Center’s Leading Indicator of Remodeling Activity shows the market appeared to hit bottom and is predicting at least moderate single-digit growth for 2011, Baker says.
“We’re starting to see some stability in the broader economy,” he says. “Things are generally pointed in the right direction.”

Midwest, Northeast lead recovery
While firms across the country are more optimistic than not about the 2011 outlook, there are some regional differences, with the Midwest and Northeast regions showing the most strength.
Remodelers in the Midwest are the most positive, with 73 percent expecting business to grow in 2011. Only 13 percent are expecting revenues to go down next year. Those in the Northeast are very confident as well, as 64 percent are predicting an increase in business and only 5 percent expect it to decrease.
Twenty-one percent of remodelers in both the South and the West expect business to decrease in 2011, although those in the South are a little more positive, with 63 percent saying they think their business will increase, compared with 54 percent of remodelers in the West.
Remodelers in the Northeast and Midwest are also seeing the strongest 2011 lead activity so far, with 46 percent of remodelers in the Northeast and 44 percent of those in the Midwest saying leads for 2011 work are up compared with this point in 2010 (and only about a quarter in either region seeing a decrease).
On the other hand, Southern remodelers are about evenly split, with 37 percent getting more leads and 35 percent receiving less. The West was the only region of the country where more remodelers are seeing a decrease in leads (43 percent) than an increase (30 percent).
That’s not surprising to Baker, who says the strongest remodeling markets are concentrated in the older housing stock of the Northeast and Midwest.
“The quick cut is we’re seeing a distinction between the Rust Belt and the Sun Belt,” he says. “The Sun Belt areas saw a lot of construction activity, a lot of overbuilding. The Rust Belt areas didn’t see that, so there are more stable house prices now.”
We already have seen signs of that regional split in 2010. Nationally, only 36 percent of remodelers increased business in 2010 and half suffered a drop in revenue. The weakest region was the West, where only 25 percent were up compared with 64 percent whose business dropped this year. In the South, only 33 percent of firms increased business this year and 54 percent lost revenue. The Northeast and Midwest were comparatively stronger, as 44 percent in the Northeast and 40 percent in the Midwest grew business.
There were also significant differences between smaller and larger remodeling firms, with the largest being most optimistic about 2011.
Fifty-five percent of remodelers with 2010 revenues of less than $500,000 expect business to increase next year compared with 67 percent of those with revenues more than $500,000 — and 76 percent of companies with revenues greater than $5 million expect business to improve in 2011.
2011 lead activity also increases with 2010 revenues. Companies with less than $500,000 in revenue are the only size that are more likely to see a decrease (43 percent) than an increase (30 percent) in leads for 2011 so far, while more than half of companies with revenues over $2 million are seeing more leads.

Other indicators pointing up
Remodelers are also optimistic average job size will increase – or at least stop falling – in 2011. Nearly half (47 percent) of remodelers say they expect their average job size to go up next year. Another 35 percent expect it to stay roughly unchanged and only 18 percent expect it to decrease. That’s compared to this year, when 52 percent of remodelers had their average job size drop and only 28 percent saw larger jobs than in 2009.
More remodelers are also planning on hiring more for 2011. While the majority (63 percent) don’t expect to make any changes, 28 percent are adding employees for 2011 and only 10 percent are cutting employees.
Another positive sign is that most companies are not planning on cutting prices next year, with 79 percent of firms saying they intend to hold the line on project pricing, although 21 percent are willing to reduce their prices.
Finally, more than 80 percent of remodelers intend to at least maintain their marketing budget (30 percent are planning to increase it) in 2011. Only 18 percent are planning to cut marketing. Many remodelers are changing the way they market, though.
E-marketing is taking on a more important role as nearly half of companies plan to increase their spending on their website. Thirty-three percent plan to spend more on e-mail marketing and 22 percent are spending more on social media.
Traditional print marketing is the most likely to be cut next year, with 36 percent planning on reducing print advertising and 21 percent saying they’re going to cut direct mail. At the same time, 27 percent are planning on increasing print advertising and 23 percent are going to spend more on direct mail.

Click here to read about three reasons for long-term optimism. [1]