ALBUQUERQUE, N.M. — Home improvement activity, which nationwide is the construction category closest to recovering from the downturn, appears to have gotten off to another routine start in the Albuquerque metro area.
As an indicator of home- improvement activity, the city of Albuquerque issued 221 building permits for “single-family alterations and additions” in the first quarter, the same number as in the first quarter of 2013 and within a half-dozen permits of 2012 and 2011.
The permit level of the last four first quarters is running 14 percent below the 15-year average of 256 permits for the quarter.
The metro is lagging behind the national trend of a surge in remodeling activity, driven in part by a broad recovery of sale volumes and prices in single-family housing across the country.
“In my view, the remodeling market is directly related to home values and consumer confidence,” said Larry Chavez, president of Albuquerque-based Dreamstyle Remodeling. “If they are on the rise, remodeling activity improves.”
Home prices in the metro have improved at a comparatively mild pace over the past two years. As of the fourth quarter, for example, the median sale price in the metro rose 3.3 percent from a year earlier, compared with 10.1 percent nationwide, according to the National Association of Realtors.
The metro continues to lose jobs: a 1.2 percent year-over-year job loss as of February, compared with 1.5 percent job growth nationwide. Continued job losses are symptomatic of a persistent economic malaise that does not lend itself to strong consumer confidence at the local level, Chavez said.
Chavez is on the steering committee of the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University, whose Leading Indicator of Remodeling Activity forecasts consumer spending on home improvements will increase by double-digit percentages into the third quarter.
Spending will drop off in the fourth quarter but remain at an elevated level, as the housing recovery nationwide loses some of its momentum.
Albuquerque could avoid the drop-off because its housing recovery hasn’t been as robust as many other markets around the country, Chavez said. In addition, he believes there’s pent-up consumer demand for both home buying and home improvements or repairs.
“They’ve been thinking about these projects for a long time,” he said.
The cause-and-effect link between home buying and remodeling is strong, according to a presentation by Kermit Baker, senior research fellow at the Joint Center for Housing Studies, at the remodeling futures conference in March. Chavez provided copies of various conference presentations to the Journal.
“Spending on home improvements generally declines with the length of time in the home – $3,130 spent in first two years in a home versus $2,360 after 10-plus years,” Baker said.
An exception to the general pattern is homeowners in the 25-34 age bracket, whose spending on home improvements increases after 10 years as their earnings grow and they have more discretionary income, he said.
On the downside, a shift from home buying to renting was seen in the 25-34 age bracket between 2010 and 2012, Baker said.
“The jury is still out as to what is causing the decrease in young homeowners,” he said.
Student loan debt and unemployment are likely contributors, as are rising mortgage interest rates that make it more expensive to buy a house. In addition, younger adults aren’t forming households at the pace they were before the recession. Household formation feeds housing demand.
Chavez said he was surprised by the conference’s emphasis on the role of younger homeowners, rather than older homeowners, in remodeling activity.
“We did some fairly simple research on zip codes we work in,” he said. “I was shocked that we do 65 percent of our business on the West Side and Rio Rancho. The area attracts a lot of younger, first-time home buyers.”