According to the Joint Center for Housing Studies, the home remodeling market nearly doubled over the past decade, reaching a new high of $280 billion in 2005. The 2000-2005 period was the best five-year period ever for remodeling. And, the gains are not over, even though growth is returning to a more "sustainable" pace. Over the next decade (2005-2015), homeowner spending for remodeling will increase by another 44 percent even after adjusting for inflation.
Underinvestment creates need
Several factors are responsible for the expected future gains in remodeling and each will have a direct impact on the furniture and cabinet industry. First, the Joint Center found that, despite the past decade's strong growth in remodeling spending, a large share of the housing stock was neglected to one extent or another. Remodeling activity has been highly concentrated, rather than widespread. The top 5 percent of households that spent the most on home improvements in 2004-2005, for example, accounted for nearly 61 percent of total expenditures.
At the other extreme, 31 million households spent less than $1,000 a year on real (inflation-adjusted) improvement and maintenance spending from 2000-2005. In many cases, this was not enough to maintain the condition of the home. As a result, the Joint Center feels that a significant amount of investment will need to occur over the next decade to recoup this lack of investment.
A second factor leading the Joint Center to predict further growth in remodeling is the aging of the housing stock. One-third of owner-occupied homes are now at least 45 years old and another third are 25-45 years old. This suggests that the vast majority of homes are increasingly in need of remodeling and repair.
Because kitchens and baths show their age more quickly than most other rooms, upgrades to these aging homes may have a particular benefit to cabinetmakers. With home price appreciation expected to slow over the coming decade, however, a larger share may be mid-range, rather than upscale projects.
Demographics drive growth
The most compelling reason to expect gains in remodeling, however, lies in long-term demographic trends. Continued interest in home ownership will boost the number of homeowners by 12 million over the next decade. But these homeowners will also spend more than in the past: average household spending on remodeling will grow by 23 percent, according to the Joint Center.
The coming decade's remodeling spending will still be dominated by baby boomers lead baby boomers (the oldest of the generation) will contribute 21.3 percent of total spending and trailing baby boomers (the youngest) will add 23.6 percent of spending. Older households have the financial resources to undertake high-end discretionary projects like major kitchen and bath remodels.
The largest contributors to remodeling expenditures, however, will be generation X'ers, who will be responsible for 27 percent of remodeling spending. The growing number of younger families, who spend larger shares of their incomes on home improvements, will offset the rising number of older households who spend a smaller share of their income on their homes.
The Joint Center expects the remodeling share of total residential investment to reach a new high of 47 percent by 2015. Furniture and cabinet manufacturers, therefore, need to focus increasingly on this large, growing market.
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