Economy, lack of confidence drive project choices

The weak economy is shrinking project sizes and dramatically changing the projects clients choose to do, according to the latest Professional Remodeler research.

More than 75 percent of remodelers have seen their average job price drop this year compared to their average from 2004 to 2008, with 11 percent seeing a drop of 50 percent or more (see chart opposite page). The majority of remodelers have seen a decrease of between 10 percent and 50 percent.

For those companies with more than $2 million in annual revenue, though, the outlook isn't nearly as bad. Only 5 percent of those companies reported job size dropped by more than 50 percent. In fact, half reported their job size had not decreased at all or had dropped less than 10 percent, with 16 percent actually reporting an increase in job size.

For those remodelers that had seen a decrease in job size, we asked them what was driving that. Consumer confidence was easily the No. 1 cause, with 70 percent of remodelers selecting it as one of the causes. More than 50 percent also said lack of financing was playing a role, while 38 percent cited decreasing home values and 34 percent noted higher unemployment. Twelve percent blamed other causes, including the government, unlicensed competition and the media.

There were differences by region (see table p. 34). In the Northeast, Midwest and South, consumer confidence was easily the No. 1 cause for decreasing job size, but in the West, remodelers cited financing challenges. Decreasing home values, much less of a factor in other regions, was nearly as important as consumer confidence to Western remodelers. That's not surprising, considering the plunging prices in states such as Arizona, California and Nevada.

With some of the nation's highest unemployment rates, remodelers in the Midwest said that was the No. 2 challenge in their region, second only to consumer confidence, while companies in the South and Northeast saw financing as the No. 2 challenge.

Project mix changing

The types of projects that remodelers are doing compared to the previous five years have also shifted. Clearly, homeowners are opting for the repairs they need or projects that provide immediate relief, such as window replacement to lower energy bills.

Kitchens continue to be the top job type, but not to the extent they have been in the past; 29 percent of remodelers said it was their most popular project in 2009, compared with 39 percent in 2004 to 2008 who said it ranked there. After that, we see an even more dramatic shift. Bathrooms were the second-most popular project in 2009, chosen as the top project for 17 percent of remodelers, up from 5 percent from 2004 to 2008. Home repairs jumped from being the top project for barely 3 percent of remodelers the last five years to 16 percent for 2009.

Additions and whole-house remodels, with their larger price tags, also took a big hit this year. Nearly a quarter of remodelers said whole house remodels were their top project over the last five years; only 12 percent said that for this year. Additions, once the top project for 19 percent of companies, was such for only 9 percent of firms in 2009.

Exterior replacement projects, barely a factor for many companies during the boom years, also have seen great growth this year. While 77 percent of companies indicated it was one of their least popular project types from 2004 to 2008, 47 percent cited it as one of their top projects in 2009.

Besides representing more of a "need" than the typical remodel, exterior projects (especially window replacement) were probably also driven by the tax credits introduced as part of the stimulus early last year. Sixty-four percent of remodelers said the credits influenced their clients' choice of remodeling projects, although only 10 percent said it was a major influence.

Even with smaller, less complex projects, homeowners are taking longer to make remodeling decisions. Many remodelers said it was the biggest change in the way clients plan their projects (see sidebar.) Nearly 70 percent of remodelers reported that the time from initial client contact to signed contract has increased over the past year, with 40 percent saying it has increased significantly.