KBB - January/February 2012 - (Page 58)
A Q&A with AIA Chief Economist Kermit Baker
This being the season for trend forecasts, it seemed fitting to end the first issue of the year not with our regular Favorites column, which will return next month, but with an interview with Kermit Baker, senior research fellow at Harvard University’s Joint Center for Housing Studies, project director of the Remodeling Futures Program and chief economist for the American Institute of Architects (AIA), which will be releasing the fourth-quarter results of its Home Design Trends Survey this month. energy costs are high now. Crude oil prices are over $100 a barrel now, and the sense is that as the economy recovers, they’re going to go higher. So more households will see more incentives for a payback on that as they start undertaking their projects. 3) The strongest growth in our population is going to be retiring Baby Boomers over the next decade. There’s a lot of potential retrofit activity as that population decides to stay in their homes for another 10 to 20 years. On the minus side, 1) There’s still concern over house prices. They haven’t hit bottom in a lot of markets, and in those markets where they have, they’re climbing very slowly. Homeowners are just nervous about investing in a market where prices may go down. 2) The Census Bureau just reported for 2011, mobility was the lowest in its recorded history, which began in the late 1940s. So a smaller share of the population moved than in any time during the last 70 years. That’s not good for home improvement spending because that’s a popular time to undertake a project—after you buy a home. 3) The final negative is the payback you get from home improvement projects. Remodeling Magazine and the National Association of Realtors annually survey realtors and appraisers about the cost of doing a project and its effect on the market value of the property. When the market is strong, the paybacks are generally 90 percent or more: I do a $50,000 kitchen remodel and that’s immediately going to increase the value of my home by $45,000. Those numbers now have dropped to 70 to 75 percent.
Where do you think the k & b industry is headed in 2012 in terms of its economic health?
According to our leading indicators for remodeling activity, it looks like 2012 is going to be somewhat flat, maybe up a little bit but probably only by low single digits. The industry will be weaker in the first half of the year and strengthening somewhat in the second half of the year.
Are certain regions faring better than others?
In general, the Northeast and Midwest have done a bit better because they haven’t had the inventory overhang seen in the South and West, which has depressed prices in those areas and made everyone a little more hesitant to undertake projects. There are parts of the South, particularly the South Central, that seem to be doing pretty well. Inland and Coastal California also seem to be improving a bit. The Southeast, such as Atlanta and the Florida markets, are fairly depressed.
What factors are you monitoring that will impact the industry this year?
There are three pluses and three minuses. The pluses are: 1) Although some areas in the South and West are substantially overbuilt, depressing house prices and reducing activity, that’s starting to be offset as this distressed property inventory works its way through the system and comes back online. We’re seeing a fair amount of spending on these homes, which have been in the foreclosure process for two years. Virtually nothing was spent on them during that time, as many were left vacant. Fannie Mae has spent quite significantly to get its inventory ready for sale. What they don’t do, however, owners will do when they buy these properties, so I think we’re going to see a bit of a jolt in spending that’s going to pick up over time. Those numbers are going to grow this year, in 2013 and potentially in 2014. 2) We’re still seeing some momentum on the green front. It’s become more about energy conservation than general sustainability. There was a bit of a hit because the energy tax credit that provided some pop is not going to happen anymore. But I think there’s generally the concern that
Who are the consumers doing home improvement projects?
Recently, it’s been a somewhat older population, who didn’t take the hit during the housing market collapse. For those who owned their homes for 10 to 15 years and got five or 10 years of appreciation, the five years of depreciation put them back to “go” so they didn’t feel the pinch. So they are older, have moved up the income scale and are a good market segment to focus on for these projects, but like everyone, they’re nervous about overinvesting in their home and not being able to get back the money they sink into it. Furthermore, from what I hear, much more of these projects are done on a cash basis than they were in previous years. There’s always been a very high reliance on cash—65 or 70 percent—but now it’s probably closer to 80 percent. And that may be why it’s shifting a bit more to older and upper-end households that have those resources on hand. Younger households just don’t have the cash or can’t get financing. It’s very difficult to save up for a $40,000-$50,000 kitchen remodel. n —Alice Liao
+ K BB
January/February 2012 / www.kbbonline.com / The Official Sponsor of KBIS www.kbis.com
Table of Contents for the Digital Edition of KBB - January/February 2012
KBB - January/February 2012
Show Director’s Note
Road to KBIS
KBB - January/February 2012