Remodel financing gap signals opportunity for lenders

Optimism surrounding the remodeling market dipped slightly in the second quarter, despite strong May numbers, a new survey found.

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The National Association of Home Builders Remodeling Market Index for the second quarter posted a reading of 61, a one-point drop from the first quarter but still comfortably in positive territory and up from last year’s score of 59. Any number over 50 indicates that more remodelers view market conditions as good than poor.

“Remodeler sentiment has been positive and stable over the past year,” NAHB Remodelers Chair Elliott Pike said in a press release Thursday. “The major headwinds that are preventing an even stronger remodeling market include rising costs, political and economic uncertainty and difficulty obtaining financing with favorable interest rates for larger projects.”

The RMI was made up of the Current Conditions Index, an average of the current market for large remodeling projects, moderately-sized projects and small projects, and the Future Indicators Index, an average of the rate at which leads and inquiries came in and the current backlog of remodeling projects, the release said. 

The Future Indicators Index caused the overall RMI to fall, as it declined two points from the first quarter to 52. The component measuring the rate at which leads and inquiries came in declined two points to 51, while the component measuring the backlog of remodeling jobs dipped one point to 54, according to the report.

The Current Conditions Index held steady at 70 in the second quarter. All three indicators came in well above 50, as the component measuring large remodeling projects, $50,000 or more, decreased three points to 64, the component measuring moderate remodeling projects, at least between $20,000 and $50,000, increased four points to 73 and the component measuring small-sized remodeling projects, less than $20,000, remained at 74, the report found.

“Despite affordability concerns, rising home owner equity and an aging housing stock are powering demand for residential remodeling,” NAHB Chief Economist Robert Dietz said in the release. “This is keeping the remodeling market relatively strong despite certain impediments, like the rising cost of building materials.”

Just under 75% of remodelers reported their suppliers increased prices of materials since March due to higher fuel costs, with the average increase in materials prices over that time being 6.7%, according to the survey.

Still, remodeling spending rose 0.9% month over month and 8.1% year over year in May, boosting private residential construction spending as a whole 0.3% from April, according to the NAHB analysis of U.S. Census Bureau data.

Builder sentiment as a whole fell to 35 in June, marking the 14th straight month it’s been below 40, according to the NAHB.

“Everything’s expensive right now,” Bert Warner, director of commercial business development at the Propane Education & Research Council, told National Mortgage News. “People are staying put and fixing up what they have, designing their house or putting things in that they always dreamed about doing … as opposed to building new and starting over.”