Lead Story… Home renovations, which are already near record highs, are projected to accelerate over the coming year according to a new report by the Harvard Joint Center For Housing titled Above Average Gains in Home Renovation and Repair Spending Expected to Continue. The study estimates that growth in the home improvement and repair space will reach 8.0% by the beginning of 2017, well in excess of it’s 4.9% historical average. From the Joint Center’s press release:
“A healthier housing market, with rising house prices and increased sales activity, should translate into bigger gains for remodeling this year and next,” says Chris Herbert, Managing Director of the Joint Center. “As more homeowners are enticed to list their properties, we can expect increased remodeling and repair in preparation for sales, coupled with spending by the new owners who are looking to customize their homes to fit their needs.”
“By the middle of next year, the national remodeling market should be very close to a full recovery from its worst downturn on record,” says Abbe Will, Research Analyst in the Remodeling Futures Program at the Joint Center. “Annual spending is set to reach $321 billion by then, which after adjusting for inflation is just shy of the previous peak set in 2006 before the housing crash.”
Housing sales do indeed spur renovation activity, but there is something else at play here not referenced in the study that we seem to be witnessing a lot of lately: a market with increasing prices, little move-up inventory and low sales will lead to renovations as well. It’s been well documented that the number of move-up homes on the market has been shrinking, meaning that those who wish to trade up out of an entry-level home have few options that are often bid up to high sale prices. Calculated Risk’s Distressing Gap chart helps to explain this: new home sales are still extremely subdued (although recovering lately) and existing home sales are still well off their prior peak despite a growing population.
In most markets, if you are an owner of an older, entry level home and you want to upgrade, there are currently few options despite the fact that you may be sitting on a large amount of equity as prices have appreciated. At the same time, debt yields have plummeted, sending mortgage rates plunging to record lows. So what do you do? Tap into some of that home equity to fix up your existing home (and, for Californians maintain a low property tax basis). This is a potentially-self-perpetuating cycle where starter homes get upgraded and people stay put longer, meaning that new construction is being relied upon for an ever-higher percentage of entry level supply. However, it becomes particularly daunting to build new homes at an entry level price point when approximately 24.3% of the final sale price of a new home is attributable to regulation. “We could see percentage growth rates in the remodeling and home- improvement sector that exceed those for new home construction in the next few years,” according to Brad Hunter, chief economist with HomeAdvisor, an online home services marketplace. Great news if you own stock in Home Depot, Lowe’s, Masco, etc or own a home in an aging neighborhood where this is going on but I’m not as convinced as the Joint Center authors are that it will necessarily lead to higher sale volume.
Still Bright: Despite all of the noise and bold print headlines, Bill McBride of Calculated Risk still doesn’t see an impending recession.
Yellow Light: JBREC sees Baby Boomer retirement keeping a lid on US economic growth through 2025.
Flattening: Renters (at least those at the high end), are starting to get some relief from ever-rising rents as inventory grows. This could lead to lower inflation, making it more difficult for the Fed to hike rates. See Also: Yellen still waiting for overwhelming evidence to warrant a rate hike.
Feeding Frenzy: Restaurants, not shops, are increasingly becoming the driving force behind retail centers in the US. See Also: As e-commerce continues to hit retailer margins, the mall of the future will offer dinner, movies….and a colonoscopy.
Crowding Out: Vancouver’s port is facing a potential crisis as the local housing boom continues to encroach onto former industrial sites leaving operators with few options for warehouse space.
Telecommuting: The boom in co-working space, combined with insane home prices and rents in the Bay Area has made telecommuting from low-priced rust belt cities a reality for some former Bay Area tech workers.
Roadblock: Construction labor unions are throwing a hissy fit and fighting Governor Jerry Brown’s plan to make it easier to build more housing in California because he has thus far refused to make a massive union handout part of the deal.
Sale of the Century: It’s apparently a great time to buy a mansion in the Hamptons as the market has cooled with sales down around 60% from last year……if you have around $10MM or so to burn.
Dinosaurs: Believe it or not, VCR’s are still being produced in Japan but won’t be after this month.
The Juice is Loose: David Ortiz aka Big Papi of the Red Sox who was washed up a couple of years ago, hit a home run so hard that it got stuck in Pesky’s Pole, because steroids.
Chart of the Day
Lazy Shit: For those of you who don’t like to lift a finger to do much of anything, there is now an app called Pooper that allows you to summon someone to pick your dog’s poop up off the sidewalk or your neighbor’s lawn. Don’t laugh, it was valued at $850MM in it’s latest funding round.
Tenement: Members of Australia’s Olympic team refused to move into Rio De Janeiro’s Athlete’s Olympic Village over safety concerns and issues with plumbing. Rio’s mayor responded by offering to get them a kangaroo in order to help them feel more at home to which an Aussie team spokesperson replied: “we do not need kangaroos, we need plumbers to account for the many puddles found in the apartments.” This has the potential to be a huge mess.
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