NAHB’s Remodeling Market Index (RMI) edged up from 40.8 to 41.5 in the fourth quarter of 2010. RMI numbers below the “break-even” point of 50 mean that a preponderance of remodelers are telling us that things have slowed down since the previous quarter.

In a declining market, we look for the RMI to get back up to 50 as an indication that the market has bottomed out and is ready for an upturn. At 41.5, it may seem that the RMI still has a way to go to reach break-even, but a couple of key RMI components have gotten much closer.

The RMI is divided into two main sections: one on current market conditions, the other on indicators of future activity. Among the “current market” RMI components in the fourth quarter, major ($25,000 plus) additions and alterations was up to 48.6. This is an important segment of the market for professional remodeling firms with business models that favor larger projects. 

Among the “future indicator” RMI components, calls for bids were also very close to break-even, at 47.2. Calls for bids bottoming out is a first step in laying the groundwork for an improving market. Next thing to look for is increased success in turning the calls into signed contracts, which would show up in the RMI component “amount of work committed for next 3 months,” and which greatly depends on improvements in credit markets enabling more homeowners to secure financing.

The RMI is based on a survey that asks professional remodelers if activity in various segments of the market has gone up or down since the previous quarter. For the RMI, or any of its components, 50.0 is a “break-even” point —where the number of remodelers saying that activity is higher exactly equals the number saying that activity is lower.  

Although not as severe as the downturn in new construction, the Census measure of spending on improvements in owner-occupied housing dropped 23 percent from 2006 to 2009 (spending on new housing construction dropped 72 percent over the same period). So it is not surprising that NAHB’s survey-based RMI has been running below 50 since 2006.