The NAHB/Westlake Royal Remodeling Market Index (RMI) for the third quarter of 2023 posted a reading of 65, edging down 3 points from the previous quarter.
While there is still demand for remodeling, some customers are pulling back on potential projects due to higher prices and increased interest rates. Even though remodeling spending has experienced some slow down over the past year, it accounts for 43% of total residential construction as of June 2023, up from 31% at the beginning of 2002. NAHB forecasts that the remodeling market will experience mild growth in 2024 & 2025.
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 2023, the Current Conditions component index was 72, falling 5 points from the previous quarter. Quarter-over-Quarter, all three subcomponents decreased with both large and small remodeling projects declining 5 points to 67 and 76, respectively, and moderately-sized projects falling 4 points to 73.
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 2023, the Future Indicators Index was 57, which is 3 points lower than the previous quarter. Quarter-over-quarter, the current rate at which leads and inquiries are coming in dropped 3 points to 56 and the backlog of remodeling jobs decreased by 2 points to 59.
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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Reduced confidence among homeowners could lead to fewer remodeling projects, potentially shifting focus towards new construction. For lenders in the construction loan market, this shift underscores the importance of adapting loan products to cater to the changing market demands. Builders might find increased opportunities for construction loans as homeowners opt for new builds over renovations, necessitating flexible and attractive financing options to stimulate construction activity.