June 2015 Remodeling Business Pulse Tracking Remodeling Conditions & Outlook. Conducted by:

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1 June 2015 Remodeling Business Pulse Tracking Remodeling Conditions & Outlook Conducted by:

2 Table of Contents Page Research Objectives & Strategies 3 Questionnaire Outline 4 Methodology 5 Executive Summary 6 Detailed Findings Remodeling Business Pulse 9 Current Conditions 10 Future Conditions 18 Regional Analysis 24 Work on Rental Homes 29 Appendix: Verbatim Comments on Sales 36 2

3 Research Objectives & Strategies Objectives Gain a quarterly measure of the current health of the industry and outlook for the near term Provide insight on specific business issues Use in lobbying efforts and to inform NARI members Strategies Get high levels of survey participation by making survey: Quick to complete Require no upfront time to gather data Use one scale as much as possible to make responding easier Allow respondents to express both the direction they think things are heading and the strength of that change Add questions focused on a selected business issue 3

4 Questionnaire Outline Overall rating of current conditions Breakout of current conditions on inquires, requests for bids, conversion to jobs, sales value of jobs sold Outlook for conditions three months from now Reasons for favorable or unfavorable outlook Comments on the future Questions about involvement in work on rental housing 4

5 Methodology Survey conducted online June 24 July 3, ed initial invitation and two reminders to 542 members who were in the NARI Research Panel 176 completed interviews 32.5% completion Median time to complete 3.1 minutes Questions regarding remodeler work on rental housing added 1.1 minutes (included in the total) Unless otherwise noted, the base size for each result is 176 Rating scales used are almost always 1 to 9 with 1 being the most negative and 9 the most positive. 5 was labeled as neutral for almost all of these questions. Where statistical significance is referenced, it is at the 90% confidence level. When directional is mentioned, that means that the difference is not statistically significant. 5

6 Executive Summary 6

7 Remodeling Business Pulse 2nd Quarter 2015 June ratings for current conditions continue to be strong. There was a statistically significant growth to 6.48 from the 6.11 in March. All the sub-components of current conditions remain solidly positive and showed some improvement in June. All changes were directional with the exception of Value of jobs which was statistically significant. Here are the ratings and the change versus the March study: Number of inquiries was at 6.31, up 6.1%. Requests for bids came in at 6.30, up 2.9%. Conversion of bids to jobs was 5.81, up 0.9%. Value of jobs was 6.43, a 4.7% growth. Conversion of bids to jobs continues to be the weakest measure. There was small uptick in this quarter s reading that did not overcome the previous two quarters of declines. Clearly getting homeowners to make that final decision to move forward is the biggest barrier to additional growth. The Sales value of jobs was sharply higher and a new record. It appears that bigger projects are returning. Strength of sales in 3 months at 6.29 was strong and just slightly below the 6.32 in June of last year. (Comparisons for this measure are now made against the study s results for same period in the prior year.) Looking at expected conditions 3 months from now continues to find a dominant proportion (68%) of remodelers expecting growth while only 8% see any level of decline. The balance (24%), see sales being about where they were last year. Growth is being driven by several factors. People needing to do projects that had been postponed remained #1 and was selected by 76% somewhat ahead of the 72% in March. More certainty about the future fell to 52% from the 53% in March. While staying #2, this is the second quarterly drop. The #3 driver was home prices improving which stayed at 50%. Economic growth edged up to 49% from 47% and remained in fourth place in the current study. 7

8 Involvement in Rental Housing Remodeling The portion of households in rental housing has risen steadily for the past 10 years. It now stands at 36%. One-third of NARI remodelers are currently involved in doing work on rental properties. The level of involvement varies by type of home. 15% work on only single family rental homes 2% work on only multi-family rental properties 16% work on both types of rental properties A small number of remodelers report previously working on rental homes, but no longer doing so now. 11% used to work on single family rental homes and 10% used to work on multi-family rental homes. The current trend in work on rental homes is slightly negative vs. last year with a rating of 4.82 The ability to start the job in rentals quickly and complete it quickly were rated as being much more important that in owner occupied homes. Also much more important was pricing. Less important for rental homes than owner occupied were attractive design, adds value, and saves money on energy or water. Looking forward, less than 5% of remodelers plan to make rental properties a larger part of their business. 8

9 Detailed Findings Remodeling Business Pulse 9

10 Current Conditions 10

11 Rating of current business strongly rebounded from March (a statistically significant growth) How would you rate your current sales compared to the same time last year? , 16% 9, 16% June 15 1, 1% 2, 1% 3, 3% 4, 9% 5, 17% 7, 21% % by individual rating 1 to 9 Ratings are from 1 to 9 where 1 = Much Worse, 5 = About the Same, 9 = Much Better 6, 16% 11

12 Number of inquires: A strong directional growth from March s low levels Compared to the same time last year how would you rate the following items that impact sales? Number of Inquires Mean , 16% 7, 20% 9, 9% June 15 1, 1% 2, 0% 3, 3% 4, 8% 6, 22% 5, 22% % by individual rating 1 to 9 Ratings are from 1 to 9 where 1 = Much Worse, 5 = About the Same, 9 = Much Better 12

13 Requests for bids: This rating made a directional improvement that continued the recovery trend started in March. Compared to the same time last year how would you rate the following items that impact sales? Requests for Bids , 16% 9, 9% June 15 1, 1% 2, 1% 3, 3% 4, 8% 5, 22% 7, 24% % by individual rating 1 to 9 Ratings are from 1 to 9 where 1 = Much Worse, 5 = About the Same, 9 = Much Better 6, 16% 13

14 Conversion of bids to jobs: A directional rebound after two quarters of declines. Compared to the same time last year how would you rate the following items that impact sales? Conversion of Bids to Jobs , 11% 7, 18% 9, 6% June 15 1, 1% 2, 3% 3, 6% 4, 10% 5.5 6, 20% % by individual rating 1 to 9 Ratings are from 1 to 9 where 1 = Much Worse, 5 = About the Same, 9 = Much Better 5, 26% 14

15 Sales value of jobs sold: A statistically significant jump in June, reaching a new all-time high. Compared to the same time last year how would you rate the following items that impact sales? Sales value of jobs sold , 18% 9, 12% June '15 1, 1% 2, 1% 3, 2% 4, 7% 5, 18% 7, 19% 6, 23% % by individual rating 1 to 9 Ratings are from 1 to 9 where 1 = Much Worse, 5 = About the Same, 9 = Much Better 15

16 Sales Value now the strongest sub-measure. Continued issues with Conversion to jobs. Comparison of Current Ratings Overall Inquires Bid Requests Conversion to jobs Sales Value 16

17 Sales Value of Jobs is clearly on an upward path, with June s result the strongest ever. Conversion of bids to jobs clearly remains the weakest link with no recent growth. 7.0 Mean Rating (1 to 9 scale) Number of Inquires Requests for Bids Conversion of Bids to Jobs Sales Value of Jobs Sold 17

18 Future Conditions Note: The analysis of future business rating is done by comparing this study s rating to the responses collected at the same time last year. This is different than the approach for the current business conditions where quarter to quarter comparisons appear most appropriate. For more details, consult the March 2015 report. 18

19 Strength of sales in 3 months: A very small shift downward from the past two years. Ratings continue be significantly higher than those gathered in Now we would like your input on the future. Compared to the same time last year, how strong do you think sales will be three months from now? June , 14% 7, 23% June '15 1, 0% 9, 7% 2, 0% 3, 2% 4, 6% % by individual rating 1 to 9 Ratings are from 1 to 9 where 1 = Much Worse, 5 = About the Same, 9 = Much Better 5, 24% 6, 24% 19

20 Postponed Projects remains the #1 driver for growth with a small gain vs. March; More certainty about the future at #2, fell for the second quarter in a row. People needing to do projects that had been postponed More certainty about the future Economic growth Home prices improving Low interest rates Improving employment Company Improvement (marketing, sales, etc.) Stock market growing June '15 March '15 Dec '14 Sept '14 June '14 Loans easier to get Weather damage related projects Other - please fill in 0% 20% 40% 60% 80% 100% Base 119 (asked of those rating future sales a 6 or higher) Multiple responses allowed 20

21 Other Reasons for Growth Prospect of good leadership Closure Rate Improvement Weather been a tough couple of months due to rain Migration into the area A lot of house sales closing NY Rising New sales person More referrals due to time we've been in business The above are inputs as supplied by the respondents. Only minor editing has been performed. 21

22 Reasons for Declines The number of remodelers seeing declines in three months was very small at 15. Data on a sample this small is not statistically valid, so it is not included in this report. Consistent with previous waves, High Levels of Uncertainty About the Future was the most common reason for forecasting declines. 22

23 Optional Specific Comments About Current or Future Sales Do you have any specific comments about current or future sales? 47 of 176 wrote in a specific comment The majority were positive comments 57% Positive 17% Neutral 26% Negative Major Positive Themes People ready to spend Bigger projects Major Neutral Themes See some positives and negatives ahead Major Negative Themes Poor leadership Some price resistance from homeowners See the appendix for verbatim comments 23

24 Regional Responses All regions reached our target of 30 before reporting, so a regional analysis is included in this report. Please keep in mind the small sample sizes when reviewing the results by region. Respondents by Region Region Mar June Sept Dec Mar June Sept Dec Mar June Northeast Midwest South West Total

25 Regional Analysis 25

26 The West region has the strongest rating for current business conditions, while the Northeast lags. (The West is statically significantly higher than the Northeast and Midwest.) Current Business Rating Northeast Midwest South West 26

27 The West has the highest ratings on all sub-measures of current conditions. The West s lead is statistically significant vs. at least one region for each measure. For Sales value of jobs sold it is significantly higher than all other regions Ratings by Regions Number of Inquiries Request for bids Conversion of bids into jobs Northeast Midwest South West Sales value of jobs sold 27

28 The outlook for the future is directionally strongest in the West. (None of the differences between the regions is statistically significant.) Future Business Rating Northeast Midwest South West 28

29 Detailed Findings Work on Rental Housing 29

30 Background Rental housing has always been part of the U.S. market. With the bursting of the housing bubble the proportion of households living in rented property has grown strongly. Some of the demand has been met by investors buying distressed single family houses, fixing them up and then renting them. Looking at first quarter data, rentals have grown from 31% in 2005 to 36% in % 36% 35% 34% 33% 32% 31% 30% 29% 28% 31% First Quarter Rental Rate 32% 32% 32% 33% 33% A few questions were added to this study to see how involved NARI remodelers were in improvements to rental single family and multi family homes. 34% 35% 35% 35% 36%

31 While all respondents work on owner occupied homes, there is much less involvement with rental properties. About 1 in 10 have previously done rental work, but have since stopped. Please indicate your company s involvement in each of the following types of dwellings. Single Family Homes-Homeowner Occupied 100% Single Family Homes -Rented 32% 11% 57% Multi Family Homes - Rented 18% 10% 72% 0% 20% 40% 60% 80% 100% Currently Work In Used to Work In Never Worked In 31

32 One third of remodelers are involved in working on at least one type of rental property. Single family dwellings are most common, but many do both multi and single family rental work. All do work on owner occupied single family homes. Multi Family Only, 2% No Rental, Owner Occupied Only, 67% Both Types, 16% Single Family Only, 15% Rental 33% Current Work Areas Labels in red indicate rental work 32

33 Among those who do work on rental properties, the most common rating for the trend in current business is about the same as last year (64%). The mean is slightly negative at 4.82 (5 is neutral). How would you rate your current sales in renter occupied homes compared to the same time last year? Please rate it on a scale of 1 to 9 where 5 is about the same as last year, 1 is much worse and 9 is much better. 1, 3% 7, 7% 8, 3% 9, 0% 2, 3% 3, 5% 6, 3% 4, 11% Mean , 64% % by individual rating 1 to 9 Base: 59 (currently work in some time of rental homes) 33 Ratings are from 1 to 9 where 1 = Much Worse, 5 = About the Same, 9 = Much Better

34 Working on rental properties has some important differences from owner occupied. Ability to start quickly, price and speedy completion are much more important for rental. On the flip side long lasting, saves money on energy/water, adds value and attractive design all are more important in owner occupied. How does the importance of each of the following compare for rental property projects versus those for homeowner occupied homes? Ability to start quickly Price Speedy completion Long lasting Saves money on energy and/or water Adds value Attractive design 0% 20% 40% 60% 80% 100% More Important for rental Equal Importance Less Important for rental NA or Don't Know Base: 59 (currently work in some time of rental homes) 34

35 Looking forward, the emphasis will be on homeowner occupied homes. Very few remodelers (4.5%) plan to grow their rental housing business for either single family or multi-family homes. A year from now, how important to your business will be each of the following types of homes? Multi-family Homes - Rented Single Family Homes - Rented Single Family Homes - Homeowner Occupied 0% 20% 40% 60% 80% 100% More important About the same importance Less Important Don't know Base: 176 (all respondents) 35

36 Appendix Verbatim Responses to: Do you have any specific comments about current or future sales? 36

37 Positive Comments Do you have any specific comments about current or future sales? Guardedly optimistic. There is a lot of pent-up demand. I also believe consumer confidence is accelerating. There is still some hesitancy and every dollar being allocated or spent is carefully observed. People seem to be more willing to spend money. Interest rates, real estate market, stock market and general economy will affect confidence of homeowners in our market area. Selling projects is not an issue. Having the labor to produce them is our problem. More time is invested in the sales/estimating process than pre-recession times. Lots of project requests, but tighter budgets than past years. Guess that is called learning from the bubble bursting. Last year was good. This year is looking even better. We are starting to see large projects again! Sales are up, closing is up, people are more confident about economy. Consumer confidence is better. more people are making decisions faster. Seems easier to convert to sales. After a recession, people start doing the first things they put on hold, small jobs. As it becomes more clear that the recession is over, that things are improving, their comfort level goes up and they start doing the bigger projects. Their comfort level is rising. I'm seeing several 203k loans. Due to increasing home prices, people are investing in neighborhoods that they would not have in the past. Commercial and industrial may be the leaders for our area. Seems like we have had a lot of home sales closing and that's generated a lot of inquiries. Also still seeing a lot of window/insulation requests. The above are inputs as supplied by the respondents. Only minor editing has been performed. 37

38 Positive Comments - 2 Do you have any specific comments about current or future sales? Pending and existing sales are larger projects. We typically see an annual pattern that request for bids soften later in the year. Beginning of the year is strong and softens as we approach and enter Fall. I am hopeful sales will improve for the remainder of However, my experience has shown that sales tend to dip during an election year. Advertising is expensive during this time while trying to compete for airtime with candidates. I feel certain that the "rush" of calls and sales this past late winter and spring have been more than the normal "pent up" calls received each year after a long winter. To me, the entire attitude of the market has changed from its sour "what are you going to do for me for free?" posture so many folks had during the recession. I feel like we have another 24 months or so of up and then another correction. We are eliminating debt and saving a war chest for the next downturn. Everyone seems to be busy. Consumers continue to be more serious about their intent to build/renovate. There also seems to be a more educated buyer with realistic budgets for their want. Consumers doing repairs because they have to (i.e., need a new deck verses want a new deck) still have unrealistic budgets because they don't want to do what they have to do. Flat growth on investments. Put money into home improvements. Want updated improvements to present home. Cheaper to improve than move There is a lot of work and there is a lot of competition, more than in past years and prices for the same work are lower than 5 years ago. I believe I am improving systems and getting my message out (Marketing) Sales have increased significantly this year. There is a boom going on, but I am hopeful that some of the gains are also due to improvements in the way we do business. In general an improving economy Fewer jobs rejected because of price. The above are inputs as supplied by the respondents. Only minor editing has been performed. 38

39 Neutral Comments Do you have any specific comments about current or future sales? More demand. Less available/qualified people to complete the demand. Still a lot of tire kicking going on with prospective clients Estimates out there but homeowners delay to make decisions to move forward We'll have to see the 2016 impact of Obama care and the energy costs. Low oil prices are fine for consumers but we lose a lot of high paying jobs. Our business is intimately tied to consumer confidence. I feel like things are starting to slow down a little bit. But, that tends to happen in the summer time any way. It will be more important than ever to qualify leads to avoid the increase in casual shoppers looking for "free estimates" Still hate the term "bids" many of us do not do bids. The above are inputs as supplied by the respondents. Only minor editing has been performed. 39

40 Negative Comments Do you have any specific comments about current or future sales? I think things will improve when a new administration stops adding debt and puts in place real changes that are business friendly and allow business to grow jobs. Everyone is holding back because of uncertainty... The economy is still tepid. I don't see any short term indication that we'll see a bump up in the business. No uniform qualifications "remodeler". Work comp. certificates required for contract to be enforceable. We have backed off of commercial work some due to the payment cycles and the very strong contract language that will definitely have an impact on our sales initially as they were big dollar projects in the past Job sizes are a lot smaller with less profit. Need to get the economy and the government run by a anyone but the current leadership Customers continue to be cautious. Projects are smaller. Interest rates will be going up People are still resistant to price increases although labor and materials have gone up at least 5% for me the last year. There are a lot of people kicking tires but it still seems like incomes have not kept up with inflation. Sales seem to really be off in the Philadelphia area. I have solicited my subcontractors, suppliers and vendors and most feel the same. People seem to be utterly clueless about how much their actual job would cost, resulting in tons of requests for bid and no sales The above are inputs as supplied by the respondents. Only minor editing has been performed. 40

41 Fred Miller President, Consumer Specialists