Remodeling Market Sentiment Softened in Third Quarter, But Remains Positive

The NAHB/Westlake Royal Remodeling Market Index (RMI) for the third quarter of 2022 posted a reading of 77, declining 10 points from the third quarter of 2021.

The RMI is based on a survey that asks remodelers to rate various aspects of the residential remodeling market “good,” “fair” or “poor.” Responses from each question are converted to an index that lies on a scale from 0 to 100, where an index number above 50 indicates that a higher share view conditions as good than poor.

The RMI is an average of two major component indices: the Current Conditions Index and the Future Indicators Index.  The Current Conditions Index is an average of three subcomponents: the current market for large remodeling projects ($50,000 or more), moderately-sized projects ($20,000 to $49,999), and small projects (under $20,000).

In the third quarter of 2022, the Current Conditions component index was 82, dropping 8 points compared to the third quarter of 2021.  Year-over-year, the subcomponent measuring large remodeling projects experienced fell 6 points to 80, moderately-sized remodeling projects dropped 8 points to 83, and the subcomponent measuring small remodeling projects declined by 6 points to 85.

The Future Indicators Index is an average of two subcomponents: the current rate at which leads and inquiries are coming in and the current backlog of remodeling projects.  In the third quarter of 2022, the Future Indicators Index was 71, which fell 13 points from the third quarter of 2021.  Year-over-year, the subcomponent measuring the current rate at which leads and inquiries are coming in dropped 17 points to 66, which was the largest decline among all subcomponents.  The subcomponent measuring the backlog of remodeling jobs decreased 8 points to 77.

The NAHB/Westlake Royal RMI was redesigned in 2020 to ease respondent burden and improve its ability to interpret and track industry trends.  As a result, readings cannot be compared quarter to quarter until enough data are collected to seasonally adjust the series.  To track quarterly trends, the redesigned RMI survey asks remodelers to compare market conditions to three months earlier, using a “better,” “about the same,” “worse” scale. In the third quarter of 2022, 10 percent of respondents said the remodeling market is “better” compared to 23 percent of respondents who indicated “worse”; those who stated “about the same” was 67 percent.

An overall RMI of 77 showcases positive remodeler sentiment due to increases in home equity over the last two years, ongoing demand for work at home, and an aging housing stock.  However, the year-over-year decline indicates weakness in the market even though the rise in interest rates has more of a negative effect on new construction than remodeling.  NAHB expects a small increase for remodeling activity in 2023, while the rate of new construction will continue to decline.

For the full set of RMI tables, including regional indices and a complete history for each RMI component, please visit NAHB’s RMI web page.

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