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Remodeling business is booming
Area contractors don’t feel pinch of industry downturn
By David Fisher / The Bulletin
Published: December 26. 2007 5:00AM PST

It’s the heart of the holiday season, but Stephen Herbert’s crews have two Central Oregon homes torn up in the midst of remodeling projects.

Mike Davis’ TMT Home Remodelers crews are just finishing up their last project of the year, too, and next year’s contract schedule, he says, is filling up fast.

The pace of new-home building may have fallen off by 60 percent or more this year in Central Oregon, as it has in most of the country. But remodelers say they’re having no trouble finding work, and the jobs they are doing — along with the crews they are hiring and the materials they are buying — may be helping to slide a floor under the region’s construction, labor and building supply markets.

“As far as remodeling is concerned, we were very busy when the production housing thing was going nuts, and we have been very busy since it has fallen down,” Davis said Friday. “Based on the inquiries we’re getting, my guess right now is that 2008 could be a record year for us.”

It’s difficult to gauge the size of the region’s remodeling market, since separate local statistics on it aren’t kept.

Nationwide, though, spending on home remodeling is estimated to account for about $180 billion in construction spending every year — enough to account for almost 40 percent of every dollar spent on residential construction and improvement, and about 2 percent of the total U.S. economy, according to an April report by Harvard University’s Joint Center for Housing Studies.

Statistics indicate that the national remodeling industry has slipped a bit as home sales and new-home construction have fallen. Relatively speaking, though, it seems to be holding up well.

The National Association of Home Builders’ Remodeling Market Index, an indicator of current market conditions, stood at 46.2 in the third quarter this year, down a bit from the third quarter of 2006 but up slightly from the second quarter that ended in June.

The market index measures remodeler perceptions of market demand. Any number above 50 indicates that the majority believes the market is improving. The index, the NAHB says, has remained slightly below 50 since the fourth quarter of 2005.

“The RMI is consistent with our forecasts for the remodeling market,” NAHB Chief Economist David Seiders said earlier this month. “We expect activity to contract in 2008 but to resume positive growth in 2009 and beyond.”

Harvard’s Joint Center for Housing Studies is a little less sanguine, predicting remodeling spending to drop 2.3 percent this year under 2006 levels, with continued declines expected through 2008 as consumers experience greater difficulty in getting cash-out mortgages to pay for the work. Altogether, it’s predicting that its rolling 12-month measure of remodeling spending will drop from $180.6 million in the second quarter of 2007 to about $173.1 million in the second quarter of 2008, a fall of about 4.2 percent.

Local outlook sunny


A bit of weakness in the national numbers may be reflected in the local market as well, depending on whom you ask. But at least some builders and suppliers say they are either expecting a strong year for their existing remodeling businesses here, or they are devoting more resources to it to make up for shortfalls in the new-home construction market.

Brian’s Cabinets, the largest manufacturer of home cabinets in Central Oregon, isn’t seeing as much of an uptick in remodeling sales as it expected this year, General Manager Mark Kramer said, but that’s largely because the biggest increases it has seen have come from lower-dollar-volume closet and garage cabinet sales, rather than from high-end custom kitchen cabinetry.

The garage and closet market is only about 10 percent of the company’s business, Kramer said, but it plans to pump up its production of those lines next year. It also plans to highlight the closet and garage lines in its new northeast Bend showroom, once the building is finished, Kramer said, and it may take to doing catalogue marketing to boost sales faster.

The growth in lower-cost, space-saving cabinetry sales could be a byproduct of people trying to squeeze more use out of an existing house without trying to move in a slow housing market, Kramer said. Or it could be, as Brian’s is betting, a trend that will last even when new-home sales and higher-end remodeling sales build again.

Whatever the case, “it complements what we are already doing,” Kramer said. “And it gives us the opportunity to grow in what looks like it might be kind of a down market.”

Whether there’s more or less money, overall, going into local remodels than there has been in recent years is hard to say, but companies that have specialized in remodels for years say they are seeing little drop-off in activity.

Classic market is key


Like TMT’s Davis, Herbert said he sees a strong year coming next year. A fair amount of his business, he said, is coming from out-of-the-area people who want to convert former vacation homes into their retirement homes. Some have shopped around for new homes, Herbert said, but most like their current locations, and most ultimately find that it’s less expensive to rearrange bedrooms, kitchens and garages to accommodate full-time living than it is to opt for a whole new home.

Vacation-home conversions may be a growth segment of the remodel market, said Pacwest Homes’ director of sales, Gary May, but the classic remodeling market — people who like the lots they are on, but need to update an aging house — continues to provide a steady stream of demand that is encouraging businesses like Pacwest to reach out for a bigger chunk of it.

Remodels still account for a fairly small portion of Pacwest’s business, compared with its custom home, production home and commercial construction segments, May said, but he hopes to grow its remodeling revenues by 60 percent to 70 percent next year, aided by a marketing push planned for the first of the year through the company’s Bend design center.

Even if that happens, remodeling would account for far less than half of the company’s revenues, May noted, adding that it takes a lot of $50,000 kitchen remodeling jobs to make up for a single $2.5 million custom home.

Still, the remodeling market remains relatively strong despite — and in some ways, because of — the downturn in production home building, May said. That’s partly because homeowners who want to remodel have generally lived in their homes long enough to build up equity, which means they still have a relatively easy time securing loans, in May’s estimation, and partly because the price of labor and materials has plunged since the general housing market cooled down.

The price of framing, for example, has plunged from $20 to $25 per foot at the peak of the labor-short housing boom to around $10 to $11 per foot now, May said. Some materials, like concrete and tile, have retained the prices they hit at the peak of the boom, but others, like framing timber and cedar, have come down.

The consumer wins


Pacwest laid off its in-house tile setters and drywallers at the beginning of the year, reacting, along with most home builders, to the slide in new-home construction, May said. But it has kept its project managers, finish crews and painters working, and it’s hiring subcontractors to fill in the gaps as work comes in.

Which is apparently keeping at least some of them working, despite the drawdown in new- home construction, albeit at lower prices.

“Our subs provide great service to us, especially now that they are a little slower as well,” May said. “They jump through hoops for us. And if it means the difference between working for a couple of weeks or being idle for a couple of weeks, for the sake of a couple of hundred dollars in price, we’re finding that the subs are being a little more flexible in that. So, at the end of the day, it’s the consumer who wins.”

David Fisher can be reached at 617-7862 or at [e-mail].

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Published daily in Bend, Oregon, by Western Communications, Inc. Copyright 2007.


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