Momentum builds, but be prepared

Last month in this space, I reviewed a series of market projections for 2014 from Harvard University as well as the industry’s leading associations. In an effort to cement that information, and to provide even deeper analysis of the 2014 remodeling market, below is the most recent industry projections revealed shortly before press time.

The Leading Indicator of Remodeling Activity (LIRA) that was released by the Remodeling Futures Program at the Joint Center for Housing Studies at Harvard University projected at least 10 percent growth for annual home-improvement spending for the first half of 2014.

As we reported last month, the LIRA maintains the remodeling growth cycle will moderate and slip below 10 percent growth by the third quarter of 2014.

Why the slip? According to Kermit Baker, director of the Remodeling Futures Program for the Joint Center for Housing Studies, by mid-2014 remodeling spending will have reached the level of spending last seen prior to the great housing crash. As a result, the Joint Center for Housing Studies believes it will be much more expensive to borrow money, resulting in tempered growth for the industry.

Similarly, remodelers who responded to our Finance Survey (see Fickle Financing, page 24) indicate they expect financing for both their business and their clients to remain comparable with 2013, if not slightly more difficult. Higher interest rates can impact a remodeler’s bottom line and, therefore, the ability to grow the company may be compromised. Same goes for their clients, as it becomes more expensive to borrow money from the banks, clients may be forced to scale back the size and scope of their remodeling project.

Is there cause for alarm? Not necessarily, the banks are still going to lend money, remodeling work is still going to be out there for you, and you should be able to grow your profit margins over 2013. The wheels of the remodeling industry will keep turning; and tougher, more expensive lending is just one more hurdle you will have to face.

In fact, many remodelers headed into 2014 with a backlog of jobs already secured. According to the most recent National Association of Remodeling Industry’s (NARI) 2013 fourth-quarter Remodeling Business Pulse, the overall business condition increased to 6.51, up from 6.41 (on a scale of 1-9, 1 being worse, 9 being better) in the previous quarter.

While remodeler confidence may be high, some categories in the NARI study experienced a slight drop from 3Q to 4Q 2013. Inquiries fell .35 to 6.2, down from 6.55; requests for bids fell .23 to 6.22, down from 6.45; and the value of jobs sold fell .04 to 6.27 from 6.31. Meanwhile, bid conversions remained flat at 6.03.

Perhaps impacting remodeler confidence in 2014 the most, NARI’s projected strength of sales in the last three months of 2013 increased to 6.41, up from the 6.12 notched for 3Q 2013.

Because we are only in the second month of 2014 and barely removed from the International Builder’s Show in Las Vegas, the industry is riding high on a wave of momentum. Of course, you want to look ahead to prepare your business for the potential of a plateau. PR

NARI member strength of sales in 4Q increased to 6.41, up from 6.12.