Spending on remodeling by homeowners is likely to increase by at least 3 percent a year over the next decade, according to both the National Association of Home Builders and Harvard University's Joint Center for Housing Studies.

Over the last decade, the remodeling sector has grown at an annual rate of roughly 3 percent, NAHB's chief research analyst, Gopal Ahluwalia, said at the group's annual convention in Orlando.

And despite the slowdown in the broader housing market, remodeling will remain at the level, Ahluwalia told a convention session.

The Joint Center's Remodeling Futures Program is calling for a somewhat larger yearly gain of 3.7 percent. That's a "more sustainable pace" than over the last 10 years, when the home improvement market doubled, and reached a new high of $280 billion in 2005, the group's latest report says.

Both the NAHB and the Joint Center expect growth in the sector to be spurred by owners who have put off fixing up their homes, a growing desire for energy-efficiency and the nation's aging housing stock.

The latest edition of the Joint Center's "Foundations for Future Growth in the Remodeling Industry" predicts that spending will rise 44 percent between 2005 and 2015.

"With rising interest rates, slower house price appreciation and faltering home sales, the home improvement market is shifting," William Apgar, a senior scholar at the Joint Center said at the NAHB conference. "Rather than taking on expensive discretionary projects, owners are investing more in routine replacement projects, systems upgrades and mid-range rather than upscale improvements."

According to the report, owners of some 31 million homes averaged less than $1,000 a year on maintenance and improvements during the first half of the decade. In many cases, this was insufficient to maintain the current condition of their properties, it added.

Kermit Baker, who directs the Remodeling Future Program, said high-income households with expensive homes and rapidly increasing values have stepped back from the high-end improvements they had been making.

"Owners are holding off on major improvements until the housing markets picks up," Baker said, noting that it makes better sense to make those kind of changes when prices are rising in value.

Now, he added, mid-range projects are paying off better than more upscale projects in most cases, and replacement projects are offering a better bang for the buck than discretionary improvements.

The Harvard report also pointed out that about a third of the nation's owner-occupied dwellings are at least 45 years old, and another third are between 25 and 45 years of age. That means a large majority of homes are of increasing need for repairs and remodeling, Apgar said.

In 2005, he added, expenditures for improvements and maintenance per rental unit was about 35 percent below the peaks level of the 1980s, yet another indication of under-investment.

"Rentals are another remodeling growth sector," the former FHA Commissioner said. "New construction is putting competitive pressure on older properties to keep up."

Ten years from now, the Joint Center expects remodeling to account for about half of all construction spending.

By 2015, Gen-Xers who are now in their 30s will represent the largest share of homeowner improvement spending of any generation. And as have all generations before them, they will outspend their predecessors, Apgar told the conference. "For these people, what used to be luxury is now basic."

Published: February 9, 2007

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