The NAHB/Westlake Royal Remodeling Market Index (RMI), a measure of sentiment among professional remodelers, for the fourth quarter posted a reading of 67, increasing two points compared to the previous quarter.
Remodelers’ sentiment was quite positive at the end of 2023, when seasonally adjusted for the slowdown that invariably occurs during that part of the year. High costs remain an issue in some places, but in many markets, customers seem to have adjusted to the unavoidable higher prices. Even though the RMI is down slightly year-over-year, the index remains solidly in positive territory, a trend observed since the second quarter of 2020. Looking forward, NAHB expects market conditions to improve throughout 2024 as interest rates continue to decline.
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. An index number above 50 indicates a higher proportion of respondents view conditions as good rather than poor.
The Remodeling Market Index (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 2023, the Current Conditions component index averaged 74, increasing 2 points from the previous quarter. Quarter-over-Quarter, all three subcomponents increased with large remodeling projects rising 3 points to 70 and both moderately sized and small remodeling projects improving 2 points to 75 and 78, respectively.
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 2023, the Future Indicators Index was 59, which is 2 points higher than the previous quarter. Quarter-over-quarter, the backlog of remodeling jobs rose by 3 points to 62 while the current rate at which leads and inquiries are coming remained unchanged at 56.
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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Encouraging news! The improvement in remodeling market sentiment during the fourth quarter signals potential growth in renovation projects. For those considering construction loans, this positive trend suggests a promising market for financing home improvement ventures. It’s a good time for contractors and homeowners alike to explore financing options for remodeling endeavors.
Biggest problems with remodeling/renovation (vs new construction) are:
1) It is often hard to locate/book a competent remodeler/renovator. With new construction you can see the finished product beforehand. And a new home builder is often not the best choice for a renovation job.
2) The final price is often “variable” and difficult to nail down up front.
3) Financing (often via a lender) is tougher. No FHA/VA/etc backstops, and higher interest rates, even with a 2nd mortage.
4) Remodeling costs can exceed the original construction price, as you must work within the restrictions of the existing construction and uncover new problems as you go.
To quote from Bob Villa on “This Old House” – “It will take twice as long and cost three times as much as you first assume”.