By the end of the year, remodeling in the United States will become a $234 billion market, situated for solid growth through 2004 thanks to economic fundamentals like growth in income and jobs.
Lately, the fundamentals have been out of whack. Experts insist the economy is improving, as measured by growth of output, yet the U.S. market has witnessed a deterioration of job growth.
During the next year, ``old-fashioned'' indicators will begin to balance. So say experts who delivered the remodeling industry's forecast at the Remodelers' Show, held Oct. 23-25 in Baltimore.
``We've got good, solid momentum to drive this industry on fundamentals,'' said Kermit Baker, director of the Remodeling Futures Program at Harvard University's Joint Center for Housing Studies, based in Cambridge, Mass.
Recent remodeling numbers have been strong, encouraged by record low interest rates, Baker said in his presentation.
According to the center's Remodeling Activity Indicator, homeowner expenditures increased 6.6 percent during the past four quarters, and spending totaled $125.2 billion. The current U.S. market roughly totals $200 billion when including activity in rental properties.
``Those numbers have been strengthened and strengthened consistently,'' Baker told attendees. ``This is during a period when the economy has been quite weak.''
The housing market itself delivered a heroic performance, experts said, buoying the economy for the past two years. The numbers continue to surprise economists. Existing home sales for September rose 3.6 percent to a seasonally adjusted annual rate of 6.69 million units, according to the Washington-based National Association of Realtors.
``We knew the September pace for existing home sales was going to be a big number, but after setting records in July and August, we thought the pace might start to slow,'' David Lereah, NAR's chief economist, said in an Oct. 27 statement.
``This underscores the powerful fundamentals that are driving the housing market - household growth, low interest rates and an improving economy.''
Other numbers released Oct. 27 by the Commerce Department supported economists' expectations. Sales of new single-family homes continued at a near-record seasonally adjusted annual rate of 1.15 million units in September, according to the National Association of Home Builders in Washington. Officials said that wraps up the best quarter on record for new-home sales.
``A lot of people think that the remodeling market thrives most when the new-home market is down,'' said David Seiders, NAHB's chief economist. ``But remodeling is not countercyclical. One of the key drivers is the turnover of housing stock as moved by existing home sales. They move together with new-home starts.''
Seiders said the job market began to firm up in the September employment report and the Bush tax-cut bills really are working for consumer and business spending.
``I'm looking for the recovery to be much more well-balanced,'' he said. ``That will mean good home-sales numbers, world-class numbers, in 2004. The outlook is great and heavily balanced toward the owner-occupied side.''
Traditionally, the remodeling market depends on two other drivers as well: interest rates and housing values. Federal Reserve policy will continue to stimulate the housing market for at least the next year, Seiders said. Housing prices have been rising aggressively and will remain healthy, with no risk of a bubble, he said.
``The areas where price increases look like a bubble are where land-use controls are tightening,'' Seiders said. ``In those areas, impact fees are used to discourage new- home building.''
Those problems are concentrated primarily along the West Coast, the East Coast, and in the Northeast through the District of Columbia.
``Prices will not decline because these are people who want to be there and who can afford to be there,'' Seiders said. ``I am firmly convinced that we are not facing housing price bubbles. As we move into the recovery, we'll put that behind us.''
As of Oct. 27, however, Seiders highlighted one potentially troubling spot for the housing market: the Bush administration's attempt to re-regulate Fannie Mae and Freddie Mac. The effort could result in higher mortgage rates, ``which could seriously undermine the economic recovery process,'' he said.