Remodeling Market Sentiment Softened, but Remains Positive
The National Association of Home Builders (NAHB) released its NAHB/Westlake Royal Remodeling Market Index (RMI) for the third quarter, posting a reading of 77, declining ten points compared to the third quarter of 2021.
“Remodelers in many parts of the country remain positive about the market,” says NAHB Remodelers Chair Kurt Clason. “In some areas, however, a growing number are seeing signs of a slowdown due to the ongoing problems of labor shortages, high material prices and rising interest rates.”
About the RMI
The NAHB/Westlake Royal RMI survey asks remodelers to rate five components of the remodeling market as "good," "fair" or "poor." Each question is measured on a scale from zero to 100, where an index number above 50 indicates that a higher share view conditions as good than poor.
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. 23 percent of remodelers said the market had gotten worse in the third quarter of 2022, compared to only ten percent who said it had gotten better.
The Current Conditions Index is an average of three components: the current market for large remodeling projects, moderately-sized projects and small projects. The Future Indicators Index is an average of two components: the current rate at which leads and inquiries are coming in and the current backlog of remodeling projects. The overall RMI is calculated by averaging the Current Conditions Index and the Future Indicators Index. Any number over 50 indicates that more remodelers view remodeling market conditions as good than poor.
The Current Conditions Index averaged 82, dropping eight points compared the third quarter of 2021. All three components declined as well: the component measuring large remodeling projects ($50,000 or more) fell six points to 80, the component measuring moderately-sized remodeling projects (at least $20,000 but less than $50,000) dropped eight points to 83 and the component measuring small remodeling projects (under $20,000) declined by six points to 85.
The Future Indicators Index fell 13 points to 71 compared to the third quarter of 2021. The component measuring the current rate at which leads and inquiries are coming in dropped 17 points to 66 and the component measuring the backlog of remodeling jobs decreased by eight points to 77.
“Home equity and ongoing strong demand for work at home and an aging housing stock are supporting demand for remodeling,” says NAHB Chief Economist Robert Dietz. “Interest rates are having a negative effect, more so on new construction than remodeling, so it’s not surprising that remodeler sentiment has so far managed to stay positive. After a decline in 2022, NAHB expects a small increase in remodeling activity in 2023, in contrast to the rate of new construction which we anticipate will continue to decline.”