A long-standing assumption is that housing turnover is the most important driver of remodeling spending. Industry analysts repeat this idea so frequently that it is almost taken as dogma.
Many analysts will tell you: “As existing home sales go, so goes remodeling spending.”
This begs the obvious question: How do improve-in-place remodels (those done by households that stay-put) stack up in importance compared to turnover (recent mover) remodels? Is the balance of importance constant or tilting from one to the other?
Foundation for long-standing belief: Home sellers remodel before putting their home on the market to increase their sale price. And buyers remodel to fix up their newly purchased homes. How does the magnitude of remodeling spending change after this initial move-in period?
Our analysis of the American Housing Survey indicates that for every additional year a household is in the home, average spend per household that remodeled declines by around $100—a moderate, but not pronounced, decline in remodeling spending each year. All things equal, recent movers pack a larger remodeling punch.
All things are rarely equal. Structural and demographic forces are tilting the balance of importance away from turnover towards improve-in-place remodels.
Mobility rates have been declining for decades for younger households (defined as those with a household head less than 55 years old). And older households (household heads greater than 54 years old) consistently move less compared to younger age cohorts across time.
Older households: For the 56% of the household age distribution with consistently lower mobility rates, aging-in-place remodels drive spending. These older households have built up wealth over their lifetime (both financial and home equity), which is now being used to fund large remodeling projects. Aging-in-place remodels are not associated with turnover.
Younger households: 44% of the household age distribution move less than in prior decades. Today, we estimate that 85% of households have a mortgage rate below 5%. Many of these are younger households who do not want to give up their very low mortgage rates and are remodeling rather than moving.
These structural and demographic forces will continue to shift the balance of importance towards in-place remodels and away from turnover. These trends represent a continuation of turnover playing a lesser role in remodeling spending compared to prior periods previously characterized by higher rates of mobility.
What are the implications for remodeling and housing?
Building product manufacturers will benefit from steady remodeling demand. Existing home sales are likely to remain restrained by homeowners not selling. Fewer people moving won’t crash remodeling. The new normal is for remodeling to grow despite constrained existing home sales.
Home builders will continue to search for elusive cost relief. The remodeling market is around 1.8 times the new construction market for building materials spending. Steady growth in remodeling demand competing for building materials will support stubbornly high building material costs. The ongoing drive to solve for affordability, and lower construction costs, will shape home-building activity for years to come.
The famed economist John Maynard Keynes once famously quipped, “When the facts change, I change my mind. What do you do?”
The remodeling market has structurally changed to be driven more by improve-in-place remodels. It is time for analysts to update their models and for the building products industry to change its perspective on housing turnover’s leading role in remodeling.
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