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Fourth Quarter Prices Released

Friday, October 3rd, 2008

On 10/2/2008 we uploaded the most recent pricing data. All subscribers should have received an email from RemodelMAX notifying them of this. Some of the pricing trends that RemodelMAX chose to highlight are as follows:

OIL PRICES MAKING THE BIGGEST IMPACT

• Roofing prices continue to rise fueled by oil increases.
• Gypsum wallboard price declines have stopped but prices remain low.
• Steel costs continue to climb as scrap metal prices continue to rise.
• Concrete prices are beginning to rise in many areas perhaps based on higher delivery costs.
• Lumber prices continue to stay steady with a small dip in plywood prices in some areas.

Here are some other relevant articles:

Solutions: Tightening It Up

Q+A: Construction costs are rising; homeowners are becoming more conscious of the money they’re spending. How is this affecting your business?

by Hayden Alfano
July 21, 2008 – From Remodeling Magazine

James Madsen
James Barton Design-Build
Apple Valley, Minn.
Big50 2008

It’s made us look at our company a lot harder. As part of that, we’ve had to take a long look at our trade partners. We’ve changed some vendors who aren’t priced competitively in this new market. We basically told them, “If we have to tighten things up, you have to, too.” Many trades have brought down their prices a bit because they just don’t have as much work.

We’ve also been helping our clients to prioritize their projects if they feel that the price tag for the full job is too high. Let’s say we’ve designed a $150,000 project for them. If they’re worried about doing a job that large, we’ll break it into two phases. We’ll do the biggest chunk now, then plan to do the remaining $40,000 when the market comes back.

Duke York
York Enterprises
Tacoma, Wash.
Big50 2007

We’re doing a lot more bidding this year. Our sales department is going gangbusters; it seems like two or three bids come across my desk per day. Homeowners seem hesitant to commit, however. They are initially curious about what a remodel might cost, but are slow to pull the trigger because of the economy.

That initial interest is a good thing; it indicates that there is still a market for remodeling. But because fewer homeowners than usual are actually signing contracts, it’s important that we get in front of as many of them as we can.

Historically, we’ve been almost exclusively residential remodeling. Now, we’re diversifying a little bit and adding to things we offer customers. We’ve recently started a service department aimed at retired home­owners who want or need assistance doing things like cleaning gutters. We also offer preventative maintenance to previous clients at a discounted fee.

Ken Kumph
Premier Builders
Georgetown, Mass.
Big50 2004

Two things have really helped our business during these difficult times: Sharpening our processes and procedures, and strengthening our relationships and company image.

We’ve reduced our staff over the past year. We now have a dedicated group who really “gets it,” and I would not want to lose a single one of them.

We all get together monthly for a “big picture” meeting to review policies, define job descriptions, and work on the business. We’ve also taken the time to modify and tighten our estimating, sales, and job costing processes.

Showing clients and associates the value we provide for them has been crucial to our continued success. Performing quality work with a high level of customer service is a given, but it’s important to take everything up a notch. Our presentations are more professional and personal. We are staying in contact with past clients, and we’ve become more heavily involved with industry organizations and events.

Jack McGrath
Jonathan McGrath Construction
Longwood, Fla.
Big50 2003

Some of our potential clients have asked if they can get a better deal given that business is slower. We explain to them that our backlog and that of our trade partners is much smaller, which works in their favor in that their project gets done faster.

We also tell them that in some cases we may be able to negotiate a better price during the building phase, but not while we’re in the midst of design. People love to think that they can get a deal, so this has helped get them off of the fence and into a contract.

We’ve renewed our focus on cutting down on waste, reducing mistakes, and eliminating slippage. Doing so has saved us and our clients valuable dollars, as we consistently come in under budget.

We prefer this approach to price-shopping our trade partners and other vendors. We need loyalty now more than ever, and we need to be loyal to them in return. When they submit a price, we know it’s complete, and we know the job will be done to our high expectations. If we need a trade to lower their price, they know we are asking so we can get the job and we’ll all have work. Mutual respect goes a long way.

Stormy Forecast

Outlook is cloudy, but prepared remodelers can weather the storm
Jonathan Sweet, Senior Editor
August 1, 2008 – Professional Remodeler

While 2007 had its rough moments, 2008 seems to be the year that the housing downturn really hit remodeling.

Fundamentally, the remodeling industry follows the trends of homebuilding. While the troughs are not as deep and the peaks not as high, new construction is a good predictor of remodeling activity.

Not surprisingly, that means it’s been a tough year, and 2009 expects to be even worse, at least in the early going. Even many of those markets such as Seattle, Portland and Texas that had been relatively strong as the rest of the country suffered have had struggles this year.

“We’re really getting caught in the housing downturn,” says Kermit Baker, director of the Remodeling Futures Program at the Joint Center for Housing Studies at Harvard.

Existing home sales and home prices are the two best statistical predictors of remodeling activity, Baker says. With the precipitous decline in both categories, it’s no surprise that remodeling activity has fallen.

“It’s unlikely we’re going to see much of a turnaround until we begin to see a turnaround in the broader housing market, or at least those key features of it begin to turnaround,” Baker says.

Growth by 2010?

The National Association of Realtors predicts that existing home sales will increase to 5.7 million next year. That’s a 6.6 percent increase from the nearly 5.4 million the group projects for this year and a slight increase over 2007, but still well below the 7 million recorded in 2005. It’s also worth noting that a year ago, NAR projected 6.1 million in sales for 2006 and 6.3 million for 2008. As for home prices, NAR forecasts a 3.7 percent increase for existing homes in 2009.

Harvard is predicting a continued decline in the market in 2009. The Leading Indicator for Remodeling Activity released in July projects an 11.1 percent decline for the first quarter of 2009 compared to first quarter 2008. (The LIRA uses a four-quarter moving rate of change, so the 2009-1 number, for example, is based on activity in the second, third and fourth quarters of 2008 and the first quarter of 2009.)

2009 could see a turning point, Baker says. That is the point when the rate of decline slows, but the market still isn’t producing positive growth. Sometime in 2010, we could expect to see a return to a positive market, he says. That would be the first growth in the LIRA since the second quarter of 2007.

“We should be back into the growth range in 2010, but it’s too early to say when,” Baker says.

The LIRA only measures improvement activity in owner-occupied homes, not maintenance and repairs, which typically remain fairly stable.

“If you have a repair project, you’re unlikely to defer that even if the economy is bad,” Baker says. “In most cases, those projects go ahead as they would independent of the economy.”

The LIRA also doesn’t track improvements to rental housing, an area that has been underinvested for years. While increased investment isn’t showing up yet on a large scale, there is great potential for the next decade, Baker says.

Harvard’s LIRA, which uses four-quarter moving totals to track remodeling volume, is predicting a drop to $122 billion for the year ending in the first quarter of 2009 down 11 percent from a year earlier and a drop of more than 17 percent from the market peak.

Tighter credit standards and increase in foreclosures are putting pressure on the rental stock, as people who were homeowners rent again and people who a couple of years ago would have bought homes stay in the rental market.

“What’s muddying that trend now is that just as these households are coming back to the rental market, a lot of these housing units are, too,” Baker says. “We’ve got houses that were built for owners turning into rentals, condos turning into apartments, so we’re seeing an increase in both the supply and the demand side.”

In the long term, though, the trend still looks positive for remodeling growth in the rental market because of increasing demand and more than a decade of underinvestment in upkeep.

Staying Strong

If companies want to survive the downturn, it’s necessary to change things. Owners should look at every aspect of the company, from sales and marketing to production and staffing. Being willing to make changes is the difference between success and failure.

Sun Design Remodeling Specialists in Burke, Va., is one of the few companies that can point to a healthy increase in business this year. The design/build firm expects to hit its goal of a 14 percent increase in revenue over last year, says vice president Bob Gallagher.

Even so, the company has had to adapt its sales and marketing efforts to focus more on building relationships with potential clients.

“The sales process has become a courting process,” Gallagher says. “We got very accustomed to signing design agreements at the first meeting. Now, we’ll be meeting with people three to four times before they sign.”

The reluctance to pull the trigger on a project has been a problem for Normandy Builders of Hinsdale, Ill., as well despite leads approaching record levels, says vice president Andy Wells.

“We’re seeing a lot of people still, but closing ratio has gotten worse,” Wells said. “Wait and see is kind of the attitude.”

Sun Design is seeing a reluctance by many clients to make the decision, taking more time before signing anything.

“I think people generally have a sense that it’s a market where they don’t have to rush,” Gallagher says. “We are seeing some apprehension in people getting off the fence.”

The company’s sales team has also rededicated itself to a consultative sales approach, focusing on what made the company successful originally. The process has to be more about the “why” (why they want to remodel) than the “what” (what they want done).

“We have rediscovered it more clearly than two years ago,” Gallagher says. “We need to hear them on an emotional level and prescribe solutions.”

The Sun Design staff is also emphasizing networking and branding in its marketing efforts, to become more personally connected to people. That means attending events the company wouldn’t have in the past such as a local wine festival to get out in front of potential clients.

“The point is when the market changes and the thing you’ve done for years doesn’t work, you can dig in your heels and be stubborn or you can find some alternatives,” Gallagher says.

Job size has also gotten smaller. Normandy Builders is seeing a shift away from large additions toward smaller kitchen projects, which Wells believes has been caused by the drop in home sales. The two types of projects actually represent two different sets of clients, he says.

“Some people would have moved, but now they can’t sell their house, so they’re remodeling their kitchen instead,” Wells says. “The bigger additions came from people who moved into a house and decided they were going to remodel. I think the clients who would have done the addition are now doing nothing instead.”

Earlier this year, the company started making cuts to be more efficient and position the company to succeed when the market comes back. That meant watching every dollar, avoiding big purchases, consolidating some jobs and laying people off.

“We had to lay off some people we really liked, but you just have to do it,” Wells says. “We had to recognize that right away, because if we waited too long to make those decisions it could hurt the company.”

Layoffs have also been a necessary survival tactic for Feinmann Inc., an Arlington, Mass., design/build firm. President Peter Feinmann let 25 percent of his staff go. The company has also been chasing more leads. Typically, Feinmann would visit 40 to 45 percent of the leads that come in. This year, it’s closer to 80 percent.

“We want to be in front of as many people as possible these days,” he says.

The company also cut prices to get some work this year, something Feinmann says was possible because he had reinvested past profits back into the company over the years.

“We didn’t have to make a lot of money this year; we just had to be maintaining what we were doing,” he says.

The company closed three or four jobs this past winter by cutting margins, yet still maintaining profitability. Making those tough decisions allowed Feinmann to avoid more layoffs.

“At that point, it was that job or no job, and I was better off getting the work at low margins than not getting them at all,” Feinmann says. “So we were very aggressive this winter selling jobs with the specs and prices that we could make a decent amount of money to keep the energy of the company flowing. Some people didn’t do that, and they got in trouble.”

The other big change has been focusing on smaller projects and being more efficient in those projects, Feinmann says.

“There are less larger projects, so we need the smaller projects to keep us going,” he says.

Smaller job sizes have also been the theme for Los Angeles-based Custom Design & Construction this year. A couple of years ago, the company had jobs in the $500,000 to $600,000 range. Those projects are now closer to $400,000. The company is taking on the same number of projects this year, but revenues are down about 25 percent.

“It used to be if someone wanted to spend $500,000 and we designed a project for them that was $600,000, and they fell in love with it; they’d do it,” says President Bill Simone. “Today people are holding hard and fast to what their intended budget is. That’s it, and they’re not going to exceed it.”

One significant competitive advantage for the company has been that it can carry the financing for its projects. In today’s lending climate, that has helped close many deals, Simone says. (For more on the company’s financing program, see the Innovators article in the January issue of Professional Remodeler or click here.)

Where Do We Go From Here?

A big part of making it through the downturn will be having realistic expectations for the recovery. It’ll likely be quite a while before the industry reaches its 2005–2006 highs because of fundamental changes in the residential construction industry and that’s probably a good thing.

“I’m not sure the peak is something we should really be looking for, because when the market was at it’s highest level, it was driven by a fairly thin slice of the population, spending a lot on fairly high-end home improvement projects,” Baker says. “That’s not something I consider a very healthy market and probably not something we want to replicate.”

Much of that growth was driven by unsustainable increases in home sales and prices. Instead, we should look for a return to the healthy market of the 1990s, Baker says, when the industry was growing, but not being driven by a very small upper-end clientele.

“It should be a much healthier industry with more broad-based activity and more and more households undertaking home improvement projects,” he says. “We’re looking for a good mix of projects to restore a healthier industry.”

© 2008, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.
Read the full article here: Stormy Forecast

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Third Quarter Prices Released

Wednesday, July 2nd, 2008

On 7/1/2008 we uploaded the most recent pricing data. All subscribers should have received an email from RemodelMAX notifying them of this. Some of the pricing trends that RemodelMAX chose to highlight are as follows:

MATERIAL COSTS BEGIN TO SLOWLY RISE

• Plywood prices rebounded up 2% during the past quarter with lumber prices gaining 1%. Both still remain below 2007 levels.
• Gypsum wallboard declined 1%, leveling off at a record low.
• Steel costs are raising rapidly with some areas showing a double digit increase during the last quarter.
• Concrete prices remain steady matching 2007 prices.
• Asphalt roofing costs are on the increase as oil prices rapidly rise.
• Even with a continue drop in new construction activity, most material costs will show increases during the next quarter due to transportation costs rising in response to oil prices. Materials that utilize oil in their manufacture, such as roofing and asphalt, will suffer significant price increases.

RECOVERY ON HOLD UNTIL 2009
Source: Joint Center for Housing Studies
Source: REMODELING Magazine
Publication date: May 1, 2008

By Hayden Alfano

The latest release of the Leading Indicator for Remodeling Activity has even the most optimistic industry observers down on the market’s chances to bounce back soon.

The LIRA, published by the Joint Center for Housing Studies at Harvard University (JCHS), forecasts the size of the remodeling market four quarters out. The most recent data points to a 4.8% decrease in home improvement activity over the course of 2008.

In previous LIRA releases, JCHS officials had tended toward the conservative when it came to commenting on the immediate future. They minced no words this time around, however, a bad sign for those who had hoped for a quick rebound. “It looks unlikely that we will see any improvement in the remodeling market until 2009,” Kermit Baker, director of the Remodeling Futures program at JCHS, said in a press release. “Currently, the second half of this year is shaping up to be weaker than the first half.”

Nicolas P. Retsinas, director of JCHS, had a similarly bleak outlook. “Spending on home improvements continues to be sluggish,” he said, adding, “The fall-off in pending home sales suggests a long and slow recovery.

DO IT DIFFERENTLY
A changing market requires adjustments. What are you doing differently?

Source: REMODELING Magazine
Publication date: June 1, 2008

By Mark Richardson

By now, most of you recognize that the residential remodeling market is not what is was a few years ago. I also think you know why. The more important issue is what you are doing about it.

As I speak to remodelers all over the country, I find that most of them are not doing anything at least not anything different from what they did in boom times. They are talking a lot about the lousy state of affairs, but they are playing the game almost exactly as they did in the past. No one has a crystal ball, but all the indicators show that for the rest of the year, things may get worse before they get better. It’s a market that will put many companies out of business unless they adjust.

Just as remodeling in the cold and snow of winter requires a different approach from doing the same job in the heat and humidity of summer, a down market requires a different approach from what we have all been used to.

Put the following ideas into action or use them to jump-start your own thinking. Depending on how soon and how well you adjust, they might help see you through the next year or two. They might even straighten out some bad habits that may have developed during the remodeling frenzy.

Sell down, not up. In this market, prospects will still call you for projects that will grow beyond their budget. Instead of relying on the clients to stretch their budget, make sure they proceed with some fraction of the original scope. Once the project is under way, their confidence will build and their emotional attachment will grow, and you may be able to Introduce additional components that make sense. In the worst case, you have at least gotten a potential “do nothing” client to do something.

Sell risk. Your prospects may not mention risk, but the topic is whirling around in their heads as they make the decision to proceed. Weave this into your discussions early. You might point to projects that are less economically risky to tackle, such as repairs, kitchens, and bathrooms. Name-brand products create confidence and may make the project feel less risky. Steer homeowners who want to tackle some of the work themselves to those parts of the project that they can confidently handle. Being cooperative and encouraging will allay their fears and lead them to a decision to proceed.

Focus on past clients. Lead flow is a good indicator of market change. These days, as the number of leads heads downward and the cost-per-lead climbs upward, and past marketing methods fail to perform as expected, the most predictable source of new business is past clients. Don’t assume that a past client is a client for life. Homeowners today treat remodelers much like retail stores. They may
regularly frequent Macy’s out of convenience, but if Bloomingdale’s does something to attract them, they’ll switch in a heartbeat.

CLIENT ADDICTION

In this market, you must create more than just happy, satisfied clients. You need clients who are addicted to you, who are vested in your success, who will do everything they can to create new business for you.

Creating this kind of client is not something you can accomplish overnight. It’s a total team sport that is tied to a mindset not just a single set of actions. But what you can do right now is to embrace the concept that your client base is a valuable resource that can create predictable results in an otherwise tough and unpredictable market.

Again, I provide these ideas to get you thinking. What are you going to do differently during the next year? Are you willing to see the gains you made over the last five years vaporize? How might smaller returns affect key team members? Will you risk losing them?

Market conditions like these can be difficult, but they can also be times when opportunities hatch. They can help you regroup and get better and stronger. They are times when you can work to position your company to blast to new heights when the environment improves.

Mark Richardson is president of Case Design/Remodeling Inc.; mrichardson@casedesign.com.

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Second Quarter Prices Released

Wednesday, April 2nd, 2008

On 4/1/2008 we uploaded the most recent pricing data. All subscribers should have received an email from RemodelMAX notifying them of this. Some of the pricing trends that RemodelMAX chose to highlight are as follows:

1st Quarter Material Trends

• Concrete prices have fallen since last December’s peak.
• Gypsum gained 2% during the last 2 months, but prices remain extremely low.
• Plywood and lumber continued a slow decline in price during the 1st quarter.

Remodeling Activity Projected to Remain Sluggish
Harvard’s Joint Center for Housing Studies

CAMBRIDGE, MA – Tighter credit standards and falling consumer confidence are expected to depress remodeling spending through 2008 according to Harvard’s Joint Center for Housing Studies. The Leading Indicator for Remodeling Activity (LIRA) reports that homeowner spending for home improvement activity will continue to decline, falling by an annual rate of 2.6% through the third quarter of 2008.

“Fewer home sales and falling home prices are dampening interest in spending on home improvements,” notes Nicolas P. Retsinas, director of the Joint Center for Housing Studies. “While remodeling expenditures are likely to continue to slump in 2008, there will remain a need for basic home improvements for an aging housing stock.”

“An expanding economy has helped cushion the remodeling market,” remarks Kermit Baker, director of the Remodeling Futures Program of the Joint Center. “Absent a more serious national downturn, remodeling activity is expected to see only modest declines in 2008.”

Foundations for Future Growth in the Remodeling Industry is available at www.jchs.harvard.edu 

Remodeling Activity Declines Slightly
National Association of Home Builder’s

Remodeling activity showed pressure from the housing downturn during the fourth quarter of 2007, according to the National Association of Home Builder’s (NAHB) Remodeling Market Index (RMI). The current market conditions indicator decreased to 40.9 from 46.2 in the third quarter. And the future expectations measure declined to 37.9 from 43.3 in the previous quarter.

The RMI measures remodeler perceptions of market demand for current and future residential remodeling projects. Any number over 50 indicates that the majority of remodelers view the market conditions as improving.

“While the housing downturn has impacted the remodeling market to some degree, it is on a much smaller scale than the rest of the market” said NAHB Remodelers Chairman Mike Nagel, CGR, CAPS, a remodeler from Chicago. “Home owners realize the importance of maintaining their property and making necessary repairs to support the value of their homes, so we expect this type of work to start to pick up again.”

Nationally, the RMI components for major additions and alterations during the fourth quarter declined to 42.28 (from 46.89). Minor additions and alterations also decreased to 41.76 (from 47.07) except for an increase in the South region to 49.81 (from 43.68). Maintenance and repair remodeling work declined to 38.11 in the fourth quarter (from 44.31).

“The decline in the remodeling market is far less than in the new home market and generally consistent with our remodeling forecast,” said NAHB Chief Economist David Seiders.

The RMI “special questions” section during the fourth quarter asked remodelers about business conditions during 2007 and their expectations for the entire year of 2008. Forty-three percent of respondents reported an increase in billing in 2007, while 25 percent reported that billing stayed at the same level as in 2006. With respect to 2008, 51 percent predict a dollar volume increase and 27 percent predict maintaining the same volume for the entire year. These results suggest that while remodelers see slower conditions in their business during the short term, the long-term prospects look good with a remodeling market recovery by the end of 2008.

For more information visit www.nahb.org/remodel

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First Quarter Prices Released

Friday, January 4th, 2008

On 1/2/2008 we uploaded the first quarter material pricing data. All subscribers should have received an email from RemodelMAX notifying them of this. Some of the pricing trends that RemodelMAX chose to highlight are as follows:

• Drywall prices continue to drop due to lack of demand in the new housing sector, sinking 17% this year.
• Common dimensional lumber prices have been stable with a modest rise during the summer ending the year with no increase.
• Studs finished the year with pricing 5% below last year.
• Plywood prices tumbled during the 4th quarter, climbing just over 2% during the year.
• Concrete prices have remained steady during most of the past quarter, having increased over 5% during the year.

Also, the 12/17/07 Forecast for Material Pricing from the Engineering News-Record was cited:

The housing market is projected to continue its decline during 2008. Lumber and cement prices are forecast to remain flat while plywood may drop 5% in price. The bottom for drywall is not in sight yet with a 20% decline in price projected for 2008.

Harvard’s Joint Center for Housing Studies new report, Foundations for Future Growth in the Remodeling Industry, identifies key sources of future growth in the remodeling industry.

From the JCHS Housing Review Spring 2007

Over the last decade, the U.S. home improvement market nearly doubled in size, reaching a new high of $280 billion in 2005. After years of exceptional growth, the remodeling sector has returned to a more sustainable pace. Under investment in the owner-occupied and rental stock, a growing desire for energy-efficient retrofits, continued strength in high-end discretionary improvements, and projected increases in both the number of homeowners and per household expenditures ensures solid growth in remodeling activity in the years ahead.

Homeowner spending on remodeling is expected to increase at an inflation adjusted compound annual rate of 3.7 percent between 2005 and 2015, generating 43.6 percent growth for the decade. Also, with new construction slowing from its record pace and improvement and maintenance activity strengthening, the remodeling share of residential investment is expected to reach a new high of 47.0 percent by 2015.

In recent years, home improvement expenditures have become concentrated at the high-end, with almost a third of spending on upper-end discretionary projects by 2005, up from only a fifth in 1995. In 2004-2005, the top five percent of households spending the most for home improvements accounted for 61 percent of all remodeling expenditures, up from 45 percent a decade ago. Though spending on high-end discretionary improvements will continue to lead overall growth, several other economic and demographic forces are currently in place that will ensure favorable and more balanced growth in remodeling activity in the coming years.

In the short run, the aging housing stock, rising demand for energy-efficient retrofits, a strengthening market for high-end rentals and the rapidly rising number of senior, minority and non-family homeowners will all support sustained growth in replacements and system upgrades. With the slowdown in the housing market, homeowners are finding that in many cases mid-range versions of projects now have a better payoff than upscale versions. Furthermore, much of the housing stock, including homes all across the price spectrum, has had only modest improvements in recent years, and these under invested homes are now prime targets for replacements, upgrades and discretionary projects.

Foundations for Future Growth in the Remodeling Industry is available at www.jchs.harvard.edu

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