ALBUQUERQUE, N.M. — The long-planned bathroom or kitchen remodel, replacing drafty doors and windows, catching up on deferred maintenance or a needed repair – home-improvement projects that many homeowners have put off for years – are starting to trickle into the market.
“The biggest factor we’re experiencing, and what’s being experienced around the country, is the pent-up demand,” said Larry Chavez, president of Albuquerque-based Dreamstyle Remodeling.
“People who have been uncomfortable with their home value, the economy and spending money in general are now more inclined to do home improvements,” he said. “There is improved financing for home improvements that hadn’t been there for a while.”
Spending on home remodels nationwide is forecasted to jump by double-digit percentages in the first half of this year by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. There’s a good chance that remodeling activity in the Albuquerque metro area will follow suit.
“I think we’ll see an increase in the 10-12 percent range,” Chavez said.
Attendance jumped by about 30 percent at the Albuquerque Home & Remodeling Show on Nov. 18-19, from about 8,000 in 2013 to 10,500 this year, said David Griffin of sponsor Interact Productions. A fixture in Albuquerque for 22 years, attendance had dropped to the 6,000-7,000 range from 2008-12, he said.
“There’s no question a recovery is underway,” Griffin said.
Chavez, or more formally his company, was recently appointed to the more-than-50-member steering committee for the Remodeling Futures Program, joining a diverse list that includes federal agencies, trade associations, lenders and titans of the construction sector like Masco and Lowe’s Home Improvement.
“We are really honored, pleased and proud to be part of that program,” he said.
Adding comparatively smaller contractors like Dreamstyle Remodeling, which has six locations in three states, as a steering committee member reflects an effort to get more grass-roots, “in-the-trenches” involvement in the program, he said.
The program is best known for its Leading Indicator of Remodeling Activity, an index that estimates homeowner spending on improvements. The latest LIRA points to a 14 percent increase in home improvement spending in the first quarter and a 14.7 percent increase in the second.
The LIRA basically reflects the national economy. Home improvement spending peaked in mid-2007, the twilight of the housing bubble, then slumped steadily – sometimes at an alarming rate – through early 2011. Since then, it has been climbing back.
Based on building permits issued for “single-family alterations and additions,” Albuquerque has generally tracked with the LIRA with one major exception. In 2012, permits for home remodels dropped by 15 percent while the LIRA rose nearly 7 percent, likely a reflection of a lack of consumer confidence at the local level.
Permits in Albuquerque and the LIRA realigned in 2013, posting increases of 6.3 percent and 7.7 percent respectively. The year-end permit count of 1,024 is roughly where it was in the early 2000s before the housing bubble.
A lot of home-improvement projects do not require a building permit, although it often depends on the details, said Land Clark, the city’s chief building official.
A kitchen remodel, for example, doesn’t require a permit if it involves a straightforward replacement of old countertops, cabinets fixtures and appliances with new ones. If the project involves reconfiguring the kitchen space and moving, adding or eliminating electrical, plumbing or gas lines and outlets, then it does.
“If in doubt, the best thing to do at the city level is sketch it out and bring it down for us to look at,” Clark said.
In addition to consumer confidence, the pace of remodeling activity is fueled by increasing home values, said both Chavez and Jamie Baxter of Bain Cochran Construction, chair of the Remodelers Council in the Albuquerque metro area.
Consumer confidence and rising home values would appear to be intertwined, since a home is the biggest financial asset for the majority of U.S. households. Remodeling activity fell during years when homes were losing values pumped up by the buying frenzy of the bubble.
In 2012, the metro’s housing market eked out the first real gain in median price in five years, which likely contributed to the upswing in remodels last year. The market continued to see modest gains in median price during 2013, which could feed the forecasted upswing in remodeling activity in 2014.
2012 also marked the first time since 2005 that the number of home sales rose by a significant amount in the metro. Sales were up in 2013 as well. Harvard’s Remodeling Futures Program has identified homebuyers as top prospects for home-improvement projects.
“I have long found this to be true as people are anxious to personalize a new home that they have carefully chosen,” Chavez said, noting that the old maxim that new buyers are “tapped out” financially holds true some of the time, but not all of the time.
A brisker pace of sales also contributes to more prospective sellers fixing up their homes to put on the market, Baxter noted.
The loosening up of credit for home-improvement projects is widely recognized as a major impetus for increased spending on remodels. Home equity-type loans virtually disappeared when the housing bubble burst and property values went in decline.
“Home-equity loans are typically second mortgages,” said Alan Fowler of First Mortgage Co. in Albuquerque. “Lenders found themselves with houses that weren’t worth the amount of their first mortgages.”
The recent credit loosening is tied directly to the gradual recovery of home values which, in turn, lowers the lender’s risk in making home equity-type loans, he said. Some lenders, including First Mortgage, have introduced “rehab loans,” basically extra financing for repairs or a remodel, that are linked to first mortgages on home purchases, he said.
Other factors in the pent-up demand for home improvements include a shift in consumer sentiment away from sitting in limbo, postponing home improvements until uncertainty in the economy and housing clears, Baxter said.
“I think they’re tired of feeling that way,” she said. “People are ready to shake it off and seize the opportunity for change.”
Then there is the positive impact of the baby boom generation, born between 1946 and 1961, on remodeling activity, both Chavez and Baxter said. Chavez said most of his customers are aged 55 and over.
Tied to the desire by many older Americans to “age in place,” these remodels can range from ramps, railings and wheelchair modifications to lifestyle or aesthetics-driven remodels. Improvements to outdoor space and the indoor space next to it are becoming more popular, Baxter said.