One Corner of Real Estate and Construction That's Thriving
Remodeling and renovation activity is at the highest level on record, according to the 7-year-old BuildFax Remodeling Index. Yes, it seems unlikely given the historic real estate bust we are living through, but more people than ever are redoing their homes, says BuildFax, an Austin, Texas-based collector of national data on the remodeling industry. And the explanations for why this is so and what's going on inside the trend contain some intriguing suggestions about how businesses outside of remodeling can ride it.
1) Remodeling is seen as an alternative to bank savings. That's how the National Association of the Remodeling Industry sees it. "You won't see the return on your investment in the near-term, but when you factor in a quicker sale or higher sale price, you could end up with more profit than savings account interest rates can provide," NARI says on its website.
2) The remodeling boom may still have a long run ahead. According to BuildFax, the May spike represents the 19th straight month of growth in its index, which counts building permits issues for remodeling projects. After April's positive numbers came out, the company said that particular month is often a bellwether for the coming year, suggesting that there is still time for other businesses to get on the remodeling bandwagon.
3) Environmentally preferable remodeling products and services are especially attractive. That's what an American Express Spending & Saving Tracker survey in March determined -- of more than 2,000 homeowners, nearly two-thirds (64 percent) planned to invest in renovation projects this year. About half said they'd go green with improvements this year, especially energy saving measures including -- in descending order of popularity -- windows and doors, insulation, roofing and air conditioning and heating systems.
While this sounds great, it's not without blemish. For instance, the chances of a homeowner really making money off a remodeling investment are not good. NARI reports that somebody who remodels a kitchen can expect to get back 72.8 percent of the cost when the home is resold -- and kitchens are the most cost-effective remodel you can do.
Likewise, while the number of remodels is up, the value is not. American Express found the average amount remodelers were planning to spend was much lower than last year, down to $3,400 this year compared to $6,200 in 2010.
What are business owners to take away from this? Now is probably a good time to look into selling to remodelers, both professional and do-it-yourselfers, but keep in mind that they don't have much to spend, and they are most interested in saving money on energy. Also, watch bank savings account interest. If rates, go up, remodeling could go down like the rest of real estate.
Mark Henricks is an Austin, Texas, freelance journalist whose reporting on business, technology and other topics has appeared in The New York Times, The Wall Street Journal, Entrepreneur, and other leading publications. Learn more about him at The Article Authority. Follow him on Twitter @bizmyths.
Image courtesy of Flickr user jaycross, CC2.0