From the looks of it, the housing market will see solid gains in 2013 as steady job growth and improved consumer confidence bolster new home construction and remodeling.
And while this growth is not large by historic standards, we are now seeing a market in repair, according to Patrick O’Toole, Editorial Director and Publisher of Professional Builder and Professional Remodeler magazines.
“The fundamental drivers of new home construction and remodeling are stronger this year than they have been for a long time. Residential construction will, without a doubt, be a bright spot for the U.S. economy in 2013.”
It is estimated that the U.S. needs 1.6 million new housing units per year to keep up with demand from population growth, demolition of old units and the market for vacation homes. U.S. Census Bureau data shows that at the market’s peak in 2005, there were approximately 2 million housing starts, or new housing units on which construction had been started. By 2009, that number dropped to 554,000.
The coming year’s numbers look promising: According to research firm Zelman & Associates, 2013 housing starts are expected to hit 945,000.
“When the market turned south in 2007, it was not a normal downturn for the business,” O’Toole says. “The machinery on which a healthy housing market depends — consistent appraisals, dependable mortgage underwriting, loans to builders, etc. — was broken. What we are experiencing now is a market that is more able to meet a demand that never went away, but became pent up.”
A good indicator of what’s to come is builder confidence. According to the Professional Builder magazine “2013 Market Outlook” survey, which was answered by 400 eligible respondents in November 2012, exactly half said they expect to see higher revenue next year compared to 2012, and nearly a quarter (22.6 percent) said they are forecasting annual revenue gains of 10 percent or more. And although the overall economy was still cited as one of the top three obstacles for 60.1 percent of respondents, there is positivity in the market.
More welcome signs are coming from the remodeling sector.
According to O’Toole, in terms of remodeling and home improvement, some segments are stronger than others. Repairs and replacements, as well as kitchen and bath projects, are moving up while major discretionary projects — room additions and whole house remodels — remain sluggish.
But, according to the U.S. Department of Commerce and the National Assn. of Realtors (NAR), new home sales are up roughly 30 percent in the 3rd quarter of 2012 from the first quarter of 2011, and existing home sales are up roughly 10 percent in the same time period.
House prices are also beginning to make a comeback. This points to higher levels of owner equity, which means homeowners will be more likely to put money into home improvements. The maturing housing stock, which has an average age of 36 years, also suggests an increase in improvement spending.
In fact, the Leading Indicator of Remodeling Activity (LIRA) released by the Remodeling Futures Program at the Joint Center for Housing Studies (JCHS) of Harvard University predicts homeowner improvement spending to hit double-digit growth in the first two quarters of 2013, reaching nearly $135 billion.
Lighting folks have a great opportunity in the midst of the remodeling sector’s progress.
Sustainable home improvement projects continue to see growth. The JCHS National Green Remodeling Survey, taken in the 3rd quarter of 2012, showed “Fixtures for Compact Fluorescent Lights” as the most popular “Green Project” for energy-efficiency in homes.
By providing resources to these homeowners looking to remodel and update with lighting, showrooms have the chance to benefit from the recovery as well.
Although there are many factors in play, the evidence is there. New and existing home sales, housing starts, house prices and consumer sentiment are all up from a year ago, and financing costs are down.
O’Toole says he confident that the housing market will continue to rally. “Over the longer term housing looks very favorable. The market has a long way to go but the outlook is very bright."