The NAHB/Westlake Royal Remodeling Market Index (RMI) for the fourth quarter of 2022 posted a reading of 66, falling 17 points from the fourth quarter of 2021.
While there is a sharp decline in RMI year-over-year, it remains in positive territory as remodeling continues to outperform the rest of the residential construction sector, whether one looks at construction spending or the NAHB/Wells Fargo Housing Market Index (HMI). Nevertheless, remodelers are noticing a pullback from consumers due to the elevated costs of materials and labor. NAHB forecasts that the remodeling sector will experience a slowing nominal growth rate in 2023, but activity should pick up towards the latter half of the year since the Fed has signaled that they plan to decelerate the pace of interest rates hikes.
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 fourth quarter of 2022, the Current Conditions component index was 75, dropping 14 points compared to the fourth quarter of 2021. Year-over-year, the subcomponent measuring large remodeling projects decreased 14 points to 71, moderately-sized remodeling projects fell 13 points to 77, and the subcomponent measuring small remodeling projects declined by 14 points to 77.
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 fourth quarter of 2022, the Future Indicators Index was 58, which is 19 points lower than the fourth quarter of 2021. Year-over-year, the subcomponent measuring the current rate at which leads and inquiries are coming in tumbled 22 points to 52, which was the largest decline among all subcomponents. The subcomponent measuring the backlog of remodeling jobs decreased 17 points to 63.
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 fourth quarter of 2022, 9 percent of respondents said the remodeling market is “better” compared to 29 percent of respondents who indicated “worse”; this is the highest percentage of remodelers indicating “worse” since Q1 2020. Those who stated “about the same” was 62 percent.
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.