Remodeling Index Down Now, Up in 2012

COSTA MESA, Calif. —  An indicator of U.S. remodeling activity offers yet another glass-half-full or –empty scenario … although the level should begin rising next year.

The Second Quarter 2011 Residential Remodeling Index (RRI) from Hanley Wood showed a slight decline – not quite one percent – from the year’s first quarter, with the 2Q index of 79.35 among the worst recorded in the national-composite index.

The 2Q results of index contribute to a full 12 months of decline for the RRI, which had indicated an upswing in the first half of 2010. 

“Remodeling is correlated to economic conditions and housing activity, both of which have shown little improvement in 2011,” said Jonathan Smoke, Hanley Wood’s executive director of research.

Turning from the half-empty part, however, tht seasonally adjusted composite rating of activity in 366 metropolitan statistical areas (MSAs) in the country declined at a less-severe rate than the drop from fourth-quarter 2010 to this year’s first quarter. And, the 2Q index didn’t slide as far as predicted in earlier projections.

In addition, 60 of those MSA showed an increase of one percent or better in 2Q 2011 over the year’s first months, including Minneapolis, Raleigh-Cary, N.C., Durham-Chapel Hill, N.C., Myrtle Beach, S.C., Columbus, Ohio, Pittsburgh, Seattle and Dallas.

“Remodeling does have more positive long-term tailwinds related to demographics, necessary and overdue home improvement projects on aging housing stock, and even greater activity caused by purchases of previously foreclosed homes,” Smoke added. 

Contiuning to the upside, Hanley Wood’s July forecast is calling for a minor decline in 3Q 2011 before activity stabilizes at the end of the year, and begins steady increases each year through at least 2015.

“We are not surprised by expectations of 2012 being stronger than 2011,” Smoke noted. “As of now, we think remodeling and replacement will see growth of about six percent in 2012 over 2011, as remodeling begins its recovery.”

The RRI is a quarterly measure of the level of remodeling activity, with the national composite reflecting the national level of activity. “Activity” includes home improvement and replacement projects, but does not include maintenance or projects of less than $500.  The index uses 2007, the peak of remodeling activities during the ‘00s,  as a baseline of 100.