The National Association of Home Builders' Remodeling Market Index posted a reading of 57 during the third quarter of 2016, up four points from the previous quarter, while continued skilled labor shortages threaten remodelers’ margins.
Thursday’s report marked the 14th consecutive quarter that the index stayed above the break-even mark of 50. A score above 50 indicates an increase in activity while a score below represents a decrease.
The RMI’s current market conditions index rose two points from the second quarter to 56. Within that index, major additions and alterations improved by two points to 54 during the period, while smaller remodeling projects and home maintenance and repair each gained three points to reach marks of 56 and 59, respectively.
Tight inventory is pushing housing prices up, making it a challenge for new buyers to enter the market while encouraging owners to invest in repair and renovation work to increase the value of their homes. That is expected to fuel a more than 8% rate of growth in home remodeling activity through its peak in the second quarter of 2017, which should best the previous high in 2006, according to the third quarter 2016 Leading Indicator of Remodeling Activity from the Remodeling Future Program at Harvard University’s Joint Center for Housing Studies. The market was on track for an annualized value of $326.5 billion during the third quarter.
A report this week from real estate listing website Zillow found that 18% of homebuyers purchased a property that had recently been renovated. Meanwhile, more than half of buyers purchased a home that needed updates, with 7% of all buyers saying that the required renovations constituted a "complete overhaul." Common improvements included interior repainting and reflooring, replacing appliances and exterior landscaping, as well as kitchen and bath remodels and basement refinishing, the report found.
Still, labor shortages threaten to raise project costs and extend timelines as builders and remodelers must pay more for labor, Houzz reported earlier this week. Meanwhile, construction job openings are at a 10-year high, the Associated General Contractors of America said last month.
This all jibes with the third quarter RMI, which noted gains in large and small jobs. Additionally, calls for bids and proposals were up six points each to 59 and 58, respectively, while the remodeling project backlog gained five points to 58. The volume of work committed inched up two points to 55 — indicating near-term gains in remodeling activity as owners capitalize on the tight market to maximize the value of their homes.