Residential Construction Increase Expected

Residential Construction Increase Expected

In the early 2000s, some in the residential-construction industry predicted that, in the not-too-distant future, the United States would reach its new-home saturation point.

The result would be a corresponding growth in the remodeling industry because the houses that had been built in the 1980s and 1990s would require major updating.

Although some builders added remodeling components to their businesses, the bursting of the housing bubble and the eight-year real estate downturn that followed brought residential construction to a crawl. The shortage of credit for small- and medium-size builders prompted many to turn to remodeling just to survive.

About 15 years from now, it’s highly unlikely that those early-millennium predictions on the housing industry’s future will come to pass.

Instead, based on its research into the health of the building-products industry, John Burns Real Estate Consulting says that at least 90 percent of forecasters, “including us, believe residential construction will rise at least 30 percent to 1.5 million-plus units because we can all count the number of young adults delaying household formation, and 1.5 million has long been considered a normal level of demand.”

Though the timing will depend heavily on economic growth and interest rates, “the demand clearly indicates that the $235 billion spent on new residential construction in the United States last year will grow dramatically,” CEO John Burns said in a market intelligence report.

Building-products companies “are sitting pretty,” looking to 30 percent-plus growth in new-home and apartment construction that will allow new construction to surpass the remodeling business eventually, he said. “Spending on home repair and remodeling has been very difficult to count and forecast,” Burns said, but a report his firm issued in September has made it easier to predict.

“Repair and remodeling spending should grow 7.8 percent in 2016, with strong growth thereafter,” Burns said. Barring a recession, “we see little downside in the United States repair and remodeling industry, which totaled $266 billion last year.

“If mortgage rates rise, which would hurt new-home construction, we believe remodeling will benefit as move-up home buyers stay in their existing home with a low-rate fixed mortgage and tap their home-equity line to remodel instead of moving.”

The report separated out the 2.2 percent growth in repair and remodeling attributable to natural-disaster spending in 2014, and has “sliced and diced the industry multiple ways,” he said. Growth in 2016 will consist of a 7.2 percent increase in spending on big projects, Burns said, and an 8.6 percent increase on small projects.

In July, the Joint Center for Housing Studies at Harvard predicted an upturn in remodeling spending of about 4 percent in first quarter 2016.

“A major driver of the anticipated growth in remodeling spending is the recent pickup in home sales activity,” said Chris Herbert, the Joint Center’s managing director. “Recent home buyers typically spend about a third more on home improvements than non-movers, even after controlling for any age or income differences, so increasing sales this year should translate to stronger improvement spending gains next year.”

During the downturn, there was a modest increase in spending on remodeling projects, as some homeowners who did not experience a major decline in equity decided to make changes that would make their homes more livable.

Things appear to be quite different today.

Author: Alan J. Heavens The Philadelphia Inquirer

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