How Home Remodeling Sales Compare to Holiday Retail Sales

Holiday retail sales fell 2.8 percent this year, according to revised figures from the National Retail Federation, the first decline since the organization began tracking sales in 1995. Recently revised numbers put the decline closer to 3.0 percent. Although it's not nearly as well-known or closely watched, the next barometer for the consumer expenditures is the home remodeling season, which starts at the beginning of each calendar year. Former Co-CEO and current Co-Chairman of ServiceMagic, Rodney Rice, is rumored to be able to tell what the year is going to look like after the first four days in January. ServiceMagic, leading online resource connecting homeowners and home improvement contractors, saw mixed results in the first week of this year. Although online homeowner requests jumped 24 percent from 2008, during solid economic times the company expects annual growth to hit 35 percent or more.

Other Home Improvement Statistics
The Census Bureau, Joint Center for Housing Studies, the Home Improvement Research Institute, and other sources echo a downturn in the home improvement industry, although most of these forecasts still look stronger than other sectors of the economy. The HIRI found declines in the home improvement products market of 0.7 percent for 2007 and 3.1 percent for 2008. Yet, their data shows the home improvement industry is poised to begin a modest rebound as early as this year with a 1.6 percent increase from 2008, and 5.9 percent increases annually over the next five years.

Perhaps the most pessimistic numbers are coming from the Joint Center for Housing Studies and the U.S. Census Bureau. The most recent Leading Indicator for Remodeling Activity shows a fourth quarter decrease of 11.9 percent from 2007 to 2008. Meanwhile, decreases of 10-12 percent are projected for the first three quarters of 2009. The LIRA only studies the data from upgrades and renovations only, not home repairs and maintenance. ServiceMagic, however, sees more tempered declines in the remodeling industry. Their 24 percent jump in online home improvement activity applied equally to both remodeling projects and basic home maintenance projects, showing some evidence that, despite less spending power, many homeowners are still willing to make major investments in their homes.

Some Remodels Faring Better than Others
Like any other sector of the economy, some expenditures are faring better than others, according to ServiceMagic. Bathrooms and sunrooms led the way with growth of more than 40 percent, solid figures even for online homeowner demand. On the other hand, kitchen and basement remodels showed more anemic numbers of 12 percent and 9 percent, respectively. Likely these numbers indicate a market adjustment in the perceived resale value of major home remodels. No longer can homeowners spend $60,000 on a kitchen remodel and expect the value of their home to instantly jump. That said, more and more homeowners are focusing on what they actually want for their homes. Sunrooms, for example, can be a great addition for many homeowners, despite their reputation for lower return on investment percentages.

Home Improvements vs. General Retail
Generally speaking, the home improvement industry shows greater resiliency to economic recession than the overall retail industry. Basic home maintenance is look toothpaste; homeowners have to repair their furnaces and roofs. Home remodels, moreover, can be seen as a solid financial investment, especially considering the volatility in the stock market. On the other hand, just as the Home Improvement Research Institute can begin to see light at the end of the tunnel, January retail sales jumped 1.0 percent unexpectedly. This isn't to say the recession is over—or even almost over—but rumors of economic apocalypse are still premature.

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