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In recent years, the home remodeling market in the United States has enjoyed solid growth. According to the Joint Center for Housing Studies, Harvard University, spending on residential improvements and repairs has climbed steadily, setting a new record of $280 billion in expenditures. Plus, the National Association of Home Builder's (NAHB) current market conditions indicator, its Remodeling Market Index (RMI), showed a slight increase this third quarter to 46.2 from 44.8 in the second quarter.

"Buoyed by continuing strong demand for minor additions and alterations, the remodeling market is expected to end the year in pretty good shape," said NAHB Remodelers Chairman Mike Nagel, CGR, CAPS, a remodeler from Chicago. "Though down a bit from the previous quarter, the remodeling market is not experiencing the dip in production and sales being seen by the new home building sector of the industry."

The RMI measures remodeler perceptions of market demand for current and future residential remodeling projects. Any number over 50 indicates that the majority of remodelers view the market conditions as improving.

"The RMI is consistent with our forecasts for the remodeling market," said NAHB Chief Economist David Seiders. "We expect activity to contract in 2008, but to resume positive growth in 2009 and beyond."

The Joint Center for Housing Studies joins Seiders' forecast for a more positive future. It predicts total home improvement activity, installation type, and project detail from 2005 to 2015 to increase at a 3.7 percent inflation-adjusted compound annual rate, generating 43.6 percent inflation-adjusted growth for the decade. The share of the home improvement activity done by professional contractors, the report adds, should rise by 45.7 percent by 2015.

"Falling sales of existing homes, and depressed remodeling contractor sentiment remain negative factors in the outlook for the industry," comments Kermit Baker, director of the Remodeling Futures Program of the Joint Center. "With borrowing costs remaining favorable, though, owners are still able to take advantage of the run-up in their house's value over the past decade to finance home improvement projects."

According to the RMI, minor additions and alterations nationally increased significantly during the third quarter to 47.07 (from 43.27), while major additions and alterations remained stable at 46.89 (from 46.36). Regionally, minor additions and alterations increased significantly in the northeast to 56.68 (from 50.43) and Midwest to 57.44 (from 45.06). The amount of work committed for the next three months rose slightly to 36.12 (from 35.91) and the backlog of remodeling jobs decreased to 44.93 (from 47.33). Additionally, owner-occupied remodeling increased to 49.1 (from 47.1), while renter-occupied remodeling declined to 38.7 (from 40.2).

Lastly, the Joint Center's "Foundations for Future Growth in the Remodeling Industry," a recent report in its "Improving America's Housing" series, notes that despite recent industry concentration, remodeling firms remain very fragmented, as self-employed contractors not only account for a majority of businesses in the industry, but also for most of the recent growth. In lieu of consolidation, many remodeling contractors have become more specialized. "By specializing, remodeling firms can achieve efficiencies even if their revenues do not reach the levels of traditional scale economies," noted Baker.

Note: The RMI is based on a quarterly survey of professional remodelers, whose answers to a series of questions were assigned numerical values to calculate two separate indexes. The Remodeling Futures Program, launched in 1995, is producing a better understanding of the US home improvement industry so that businesses can better take advantage of the opportunities that this market offers.

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