What Do Home Buyers Buy after Moving

October 17, 2013

In a post last week we discussed NAHB research showing how during the first two years after closing on a home sale, home buyers tend to spend money on furnishings, appliances and remodeling considerably more compared to non-moving owners. Buyers of new homes spend most, outspending non-movers by a factor of 2.8. Buyers of existing homes spend twice as much as non-moving owners. This post reveals particular items that are most popular with home buyers and helps explain changes in their spending behavior triggered by a house purchase.

The NAHB analysis of the Consumer Expenditure Survey (CES) data from the Bureau of Labor Statistics shows that the biggest outlay in the budget of new home buyers is furnishings. They spend $5,288 on furnishings during the first year after buying home, outspending buyers of existing homes 2.2 times and non-moving owners 5.3 times. Average spending is estimated for all households in the group regardless whether they purchased a certain item or not. Thus, higher averages may point to larger and/or more frequent spending by the group.

Single-Family Detached Home Owners’ Average Annual Spending on Various Items, 2007$

Spend_chart

The biggest ticket item for all home owners is bedroom furnishings, including mattresses. However, buyers of new homes spend twice as much on this item as existing home buyers and outspend non-moving owners six times.  This is not surprising considering that the number of bedrooms in new single-family detached homes has been on the rise.

The second largest furnishings outlay for home buyers is sofas. New home buyers spend on average $746 during the first year after moving, more than double of what existing home buyers spend, and more than six times the amount spent on sofas by non-moving owners.

The differences are even larger when comparing spending on window coverings. New homebuyers outspend existing home buyers 7.7 times and non-moving owners 24.7 times.

New home buyers also outspend non-moving owners on every single appliance listed in the CES. They also tend to outspend existing home buyers across almost the entire range of appliances. The few exceptions include lawnmowers, gas stoves, built-in dishwashers, and some other miscellaneous appliances. The high level of spending by new home buyers may seem surprising considering that many new homes come with installed appliances, but the data suggest that these purchases are nevertheless more frequent among these households.

New home buyers spend the most on televisions, refrigerators, clothes washers/dryers, and computer systems – items that are less likely to be included in the purchase of a new home. The most expensive appliances in the budget of existing home owners are clothes washers/dryers, refrigerators, and lawnmowers.

Somewhat surprising, new home buyers spend almost as much as buyers of existing homes and outspend non-moving owners on property alterations and repairs. However, the specific types of remodeling projects are quite different across the groups. As expected, buyers of existing homes and non-moving owners spend more on various repairs and replacements. As a matter of fact, existing home buyers spend more than new home buyers on every single item the CES lists as a repair or replacement. They also outspend new home buyers on kitchen/bathroom addition or remodeling, and purchasing and installing new items such as HVAC, plumbing, electrical and security systems, paneling, flooring, siding, windows and doors.

However, when it comes to outside additions and alterations, including additions of patios, terraces, new driveways, and fences, new home buyers outspend existing home buyers and non-moving owners by far. There are several items where non-moving owners outspend homebuyers, including addition of detached garage, repairs of driveway/walk, siding/roofing, replacements and repairs of doors and windows.


The Ripple Effect of Home Buying

October 9, 2013

Using the Consumer Expenditure Survey (CES) data from the Bureau of Labor Statistics (BLS), NAHB Economics research shows that a home purchase triggers additional spending on appliances, furnishings, and remodeling. Such spending typically exceeds that of non-moving home owners and persists for two years after moving.

The NAHB analysis compares spending behavior among three groups of single-family detached home owners: buyers of new homes, buyers of existing homes and non-moving owners. During the first two years after closing on the house home buyers tend to spend on appliances, furnishings and property alterations considerably more compared to non-moving owners. However, home buyers tend to be larger households with children, and on average wealthier, with higher levels of education and concentrated in urban areas. Any of these factors could potentially explain higher spending on appliances, furnishings and remodeling by home buyers. Thus, the NAHB analysis controls for the impact of household characteristics on expenditures, and, nevertheless, finds that a home purchase alters the spending behavior of homeowners and that otherwise similar homeowners spend more across all three categories compared to non-moving owners during the first two years after moving. Ripple_blog1

Looking at spending patterns of new home buyers and identical households that do not move, the differences are largest on furnishings. A typical new home buyer that buys a new home is estimated to spend in excess of $3,000 more on furnishings than an identical household that stays put in a house they already own. The elevated level of spending persists into the second year as new home buyers spend additional $2,000 over their typical budget on furnishings.

Similarly, moving into a new home triggers higher levels of spending on appliances. A typical new home buyer that moves into a new home is estimated to spend $1,005 more on appliances during the first year compared to a non-moving owner. The difference shrinks to $348 during the second year and goes away after that.

In the case of property repairs and alterations the differences are smallest, $740, and last only one year, which is not surprising considering that most households would not want to spend years in a house with ongoing remodeling projects.

Buying an older home also triggers additional spending. The typical buyer of an existing home tends to spend close to $4,000 more on remodeling, furnishings, and appliances compared to otherwise identical homeowners that do not move. However, in case of buying an older home, most of this extra spending goes to remodeling projects, more than $2,000, and occurs during the first year after closing on the house. Only the additional spending on furnishings tends to persist beyond the first year.

Ripple_blog2

The statistical analysis further shows that this higher level of spending on furnishings, appliances and property alterations is not paid by cutting spending on other items, such as entertainment, transportations, travel, food at home, restaurants meals, etc. This confirms that home buying indeed generates a wave of additional spending and activity not accounted for in the purchase price of the home alone.

In summary, the NAHB analysis shows that during the first two years after closing on the house a typical buyer of a new single-family detached home tends to spend on average $7,400 more than a similar home owner who does not move, including $4,900 in the first year after purchase.  Likewise, a buyer of an existing single-family detached home tends to spend about $4,000 more than a similar non-moving home owner, including $3,600 during the first year. The overall ripple effect of home buying does not stop here, as producers of appliances, furnishings and remodelers spend their additional income paid by home buyers and trigger further waves of economic activity.


Single-Family, Multifamily, Home Improvement Spending All Up

July 1, 2013

Total private residential construction spending increased to a seasonally adjusted annual rate of $328.6 billion in May 2013, the fastest pace of residential construction since October 2008. The reading is 1.2 percent above the positively revised April estimate and 22 percent higher since a year ago.

All three components of residential construction spending registered gains. New multifamily construction spending showed the largest increases, rising 2.5 percent since April and 51.7 percent since May 2012. It is now at a seasonally adjusted annual rate of 31.8 billion.

Res_spen_May2013

Spending on new single-family homes increased to an annual rate of $166.3 billion, the rate unseen since August 2008. On a year-over-year basis, new single-family construction spending increased 33.2 percent.

Finally breaking the decline that started in January 2013, home improvement spending also registered gains. Remodeling spending increased to an annual rate of $124.2 billion, 1.9 percent above the April reading, 7 percent above the year ago, but still below the spending rate registered during the first quarter of 2012.


Do It Yourself or Hire a Professional?

May 8, 2013

To celebrate National Home Remodeling Month in May, the National Association of Home Builders (NAHB) Remodelers recommends that home owners consider the safety risks, time delays and hidden costs before attempting do-it-yourself (DIY) home improvements.

According to the 2011 American Housing Survey (AHS) from the HUD/Census Bureau, home owner do-it-yourself (DIY) projects accounted for 37 percent of all home remodeling projects performed nationwide from 2010-2011 but only 18 percent of all remodeling spending. DIY home improvement projects tend to be smaller, require less technical training and expertise and cost less, with 50 percent of home owners spending less than $950 on these projects. At the same time the median spending on professional remodeling projects is close to $4,000.

One of the most expensive remodeling projects is a kitchen addition, with half of these projects costing more than $27,000. Very few homeowners attempt or manage to add a kitchen on their own. The AHS data show that more than 80 percent of kitchen additions are done professionally.  Replacing roofing is also largely outsourced to professional remodelers, 82 percent of these projects are completed by professionals. Home owners also tend to hire professionals when it comes to home improvement projects that require technical training and, often, a professional license.  Close to 90 percent of all remodeling projects that involve adding or replacing HVAC system are done professionally. Almost two thirds of projects that replace internal water pipes, electrical system, major equipment and appliances are completed by professionals. Not only that home owners might not have the right tools and knowledge to complete these projects, but many warranties become void by improper installation.

Home owners are more adventurous and successful in finishing smaller projects. About half of all plumbing fixtures replacements are completed with no professional help. More than half of all bedroom and recreation room renovations are completed by home owners as well. These tend to be smaller projects, with half of them costing less than $1,500 and $1,600, respectively. Professional bedroom and recreation room renovations are bigger in scope with median spending of $5,000 and close to $7,000, respectively.

For additional tips and considerations before taking on a DIY home remodel read the National Association of Home Builders (NAHB) Remodelers press release


Positive Run Continues for Residential Construction Spending

February 1, 2013

Private residential construction spending jumped 2.2% on a month-to-month basis during December 2012. The initial estimate of a 0.4% gain for November was moved up slightly to a 0.6% increase, but the October number was pushed appreciably higher from 1.3% to 3.2%. Spending has registered nine uninterrupted months of growth, as well as 16 of the last 17 months showing expansion. The nominal dollar level of spending has now reached its highest point since late 2008 and the average from the last three months is 32% above the cyclical low.

Spending on new single-family homes decelerated to its slowest pace of month-to-month growth since the first quarter of 2012, rising 0.8% versus November. On a year-over-year basis, the nominal value of spending on new homes has risen over 28%. In addition, since bottoming out around the midway point of 2009, construction spending has surged 59%. The current NAHB forecast calls for single-family housing starts to expand for the entirety of the outlook period, but a slower pace of growth is anticipated during the first quarter of this year. They are expected to re-accelerate over the remainder of 2013, and thus we anticipate a similar pattern will likely occur for construction spending.

construction spending

 

Construction spending on new multifamily projects jumped 6.2% during December 2012. Moreover, the initial estimate for November was revised higher from 0.5% to 1.8%, indicating spending activity finished the year strong. Of the three main categories of residential construction, multifamily has experienced the strongest rebound from its cyclical trough. Gains in spending have occurred in each of the last 15 months, with the latest month available representing the second largest percentage increase over this time period. On a year-over-year basis, the level of spending has skyrocketed more than 57% and has gained 97% from the bottom in August 2010.

Remodeling activity improved in December as spending climbed 2.9% from the prior month. Preliminary estimates for October and November were also revised higher, significantly higher in the case of October with a 1.9% decline turning into a 2.3% gain. The 3-month moving average points to a solid upward trend in home improvement spending and closed out 2012 at its highest nominal dollar value since September 2007. NAHB’s Remodeling Market Index (RMI) has offered a similar judgment on recent home improvement activity as the current and future market indicators have achieved their best readings since the first quarter of 2004.


Residential Construction Spending Rises for Eighth Consecutive Month

January 3, 2013

Spending on private residential construction activity ticked 0.4% higher on a month-to-month basis during November 2012. October’s preliminary reading of a 3% gain was bumped down to a 1.3% increase, but at the same time the initial estimate for September was pushed upward from 1.1% to 2.9%. Spending has increased in each of the last 8 months (and 15 of the last 16), rising to a 4-year high and nearly 33% above the trough during the third quarter of 2010.

New single-family home construction led the way in terms of spending growth among the private residential categories during November, posting a 1.3% increase versus October. Spending has climbed more than 29% above its nominal level of a year ago and stands 57% higher compared to the trough in mid-2009. A softer reading on single-family housing starts might point to some potential weakness in spending on this category going forward, but a 2-point increase in NAHB’s HMI and another strong reading on permit authorizations point to stronger construction activity (and by extension spending) over the near term.

construction spending

The multifamily construction sector registered its slowest rate of month-to-month growth in nearly a year, but November’s 0.5% still marked the 14th month in a row spending activity has increased. In the past year, nominal spending on multifamily projects has jumped 46% and stands nearly 83% higher than the low posted in August 2010. Starts of multifamily dwellings have averaged over 250,000 units for the past six months and approached 300,000 during the past two months. The current forecast calls for a modest slowdown in starts during the first quarter that will likely be followed by gains through the end of 2014–a pattern that can be expected for construction spending in this sector.

Spending on home improvements dipped 0.7% in November, adding to the 1.9% contraction (revised downward from a 1.8% gain) reported for October. Expressed as a 3-month average (so as to smooth out monthly volatility), nominal spending on remodeling activity has hovered around a 5-year high for the past few months. NAHB’s Remodeling Market Index (RMI) has pointed to an even stronger assessment of current market conditions by professional remodelers as the RMI reached 50 for the first time since 2005. Our forecast calls for steady gains in remodeling activity through the end of 2014.


Residential Construction Spending Climbs to 4-year High

December 3, 2012

Private residential construction spending surged 3% on a month-to-month basis in October 2012. The initial estimate for September was revised downward from a 2.8% gain down to a 1.1% rate of growth; however, this was more than offset by an upward bump in the previously reported estimate for August from 1.2% to 2.8%. Following increases in 14 of the last 15 months, nominal spending on private residential construction activity is at its highest dollar value since late 2008. In addition, spending has risen 32% above the trough registered during the third quarter of 2010.

New single-family homes continued to post solid rates of growth, increasing 3.6% on a month-to-month basis for the second month in a row. Spending is also 29% above its year-ago level and has climbed 55% since bottoming out in mid-2009. This latest print on construction spending merely confirms the firming recovery for new single-family home construction that has been observed via housing starts and the HMI. With permit authorizations climbing rapidly and hitting their highest levels since the summer months of 2008, we anticipate this robust pace of growth in construction activity to continue over the near term.

construction spending

The positive momentum continued for the multifamily sector, notching its 13th consecutive monthly increase with a 6.2% gain over September 2012. Overall, the dollar value of multifamily construction activity has surged more than 82% from its cyclical low observed just two years ago, due in part to strong growth in renter demand. Multifamily starts have averaged better than 230,000 units over the duration of 2012 and given that permits have averaged approximately 280,000 units during the same time period, multifamily construction spending will likely rise further in the coming months.

Home improvement activity expanded 1.8% during October 2012, offsetting the downward revision of a 1.2% decline posted for September. Using the 3-month moving average to iron out some of the volatility in this metric, nominal remodeling spending has reached its highest point in five years. NAHB’s own Remodeling Market Index (RMI) has pointed to an even stronger assessment of current market conditions by professional remodelers as the RMI reached 50 for the first time since 2005.


Residential Construction Spending Surges on New Construction and Remodeling

November 1, 2012

Private residential construction spending jumped 2.8% on a month-to-month basis during September 2012. The preliminary estimates for July and August were revised higher as well, from previous prints of -0.1% and 0.9% to 1.3% and 1.2%, respectively. Nominal spending activity on private residential construction has expanded in 13 of the last 14 months, putting it nearly 21% above September 2011 and at its highest dollar value since the end of 2008.

The new single-family homes spending category saw growth accelerate in September, gaining 3.9% from the previous month and 26% from last year. Save for a one month downward blip in March 2012, construction spending on new single-family housing has increased solidly since last summer and risen more than 50% since hitting rock bottom during the second quarter of 2009. Data sources such as housing starts and NAHB’s own HMI continue to offer evidence that construction of new single-family homes is on the mend and given that building permits are at their highest level since mid-2008, construction activity is expected to rise for the foreseeable future.

Multifamily construction spending registered its 12th consecutive month-to-month increase, gaining 1.3% over August 2012. Although the multifamily sector has posted the largest percentage increase in spending activity compared to its cyclical low (73%), the overall trend in spending growth has slowed in each of the last three months. While this might represent a lull, spending should continue to expand over the near term as multifamily starts have exceeded 200,000 units in 8 of the last 9 months and permits for 5+ units surged to a four-year high in September.

Nominal spending on home improvement activity increased 2%, more than recouping the 1.1% month-to-month drop that was reported in August. While remodeling has bounced around for much of the past two years, the level of spending activity has trended appreciably higher over the past few months and is now sitting at a 4-year high. Indeed, NAHB’s Remodeling Market Index (RMI) indicated professional remodelers’ perceptions of current market conditions are at their highest levels since 2005.


Residential Construction Spending Rises in June

August 1, 2012

According to the Census Bureau, private residential construction spending increased for the third consecutive month in June, gaining 1.3 percent from an upwardly revised estimate for May 2012. The overall trend in private residential construction spending has been quite strong as the data expressed on a three-month moving average basis has risen in each of the last 9 months. With this month’s reading, nominal spending on private residential construction projects has reached its highest point since the beginning of 2009.

Construction spending on new single-family homes jumped 3 percent on a month-to-month basis and has staged nearly a 19 percent improvement from the same period a year ago. Moreover, since bottoming out during the second quarter of 2009, the nominal dollar value of spending on new single-family homes has climbed 38 percent. With both starts and permitting activity for new single-family homes still on the rise, additional gains in spending are expected over the very near term and should carry forward as the forecast calls for the pace of homebuilding activity to gain momentum as the calendar transitions to 2013.

Multifamily construction spending increased 3.4 percent during June and has experienced gains in each of the last 9 months. Overall, spending on new multifamily units has skyrocketed by 66 percent from its low point in August 2010. Construction activity is expected to level out over the remainder of 2012, but we anticipate multifamily starts to remain well above 200,000 through the end of next year. Home improvement spending slipped on a month-to-month basis in June, continuing its see-saw pattern of the last several months. Remodeling activity has remained in a relatively tight range for the past two years, but did provide some degree of stability during the housing market downturn while production of multifamily and single-family units fell rapidly.


Private Residential Construction Reaches Three-Year High in May

July 5, 2012

The Census Bureau’s newest release on construction spending showed a 2.8 percent increase in spending activity for private residential projects in May 2012. On a three-month moving average basis, spending has increased during each of the last 8 months. This release also featured revisions to prior estimates dating back to January 2010. While the modest upswing in total private residential construction activity has been preserved, multifamily construction spending has been expanding at a slightly faster pace than before. Overall, this marks the highest nominal level of residential construction spending since early 2009.

New single-family construction activity expanded for the 12th time in the last 13 months, gaining 1.8 percent versus April and nearly 15 percent from the May 2011 level of spending. Since bottoming out during the second quarter of 2009, spending on new single-family homes has risen more than 33 percent. Although the forecast calls for accelerating growth in homebuilding activity over the next several quarters, a sluggish labor market and tight lending standards are impediments to stronger gains in construction going forward.

As mentioned above, the revisions to historical data produced a modestly stronger recovery for new multifamily construction activity. Nominal spending increased 6.3 percent compared to April and has surged more than 50 percent on a year-over-year basis. Even with an unexpectedly weak reading in May, starts of buildings with 5+ units have averaged 211,000 on an annualized basis since the beginning of the year and permits have averaged 235,000 over the last 7 months. Therefore, new multifamily spending will likely recover further over the course of 2012. Home improvement spending improved for the second consecutive month, increasing 3.6 percent in May, coming on the heels of a 1.5 percent rate of growth in April. Although spending on remodeling held up better than new multifamily and single-family during the housing market downturn, remodeling activity has held within a generally close range since late 2010.


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