Since the mid-1980s, NAHB’s Economics Department has conducted a monthly survey of builders in order to monitor housing market conditions on a timely basis.
The residential remodeling market during 2001 was $153 billion, which is about 2% of the nation’s gross domestic product and roughly two-fifths of total spending on housing (single-family plus multifamily). Furthermore, the remodeling market is expected to increase at an annual rate of at least 5% during the next 10 years, and at some point during this period the size of this market may exceed the market for new units. Thus, NAHB had a need, and the opportunity, to create a Remodeling Market Index (RMI), which could achieve the same type of recognition as our Housing Market Index for new single-family homes. Indeed, NAHB’s RMI is the only measure of remodeling based on surveys of producers, and our index is becoming a standard for the industry.
A survey of a panel of remodelers on a regular basis also gives NAHB the opportunity to collect information about various remodeling subjects, through the inclusion of special questions, which provides useful information to about the remodeling industry and the NAHB membership.
Methodology A panel of approximately 2,000 remodelers was developed by mailing a short questionnaires to about 15,000 remodelers requesting them to join the panel. The list of 15,000 remodelers was developed from the NAHB membership file, as well as from lists of members of NAHB’s Remodeler’s Council and subscribers to the Hanley-Woods Remodeling Magazine. Panel members were asked to provide profiles of their firms, i.e. types of remodeling activity, annual dollar volume, number of employees, etc., and this information is updated once a year.
Three focus groups of remodelers were conducted to gather input regarding the best way to design questions to measure remodeling activity. The focus groups were held in Washington, DC, New Haven, CT, and Houston, TX. The local Remodelors council in each area were involved in this effort.
A one-page survey was developed and is mailed to members in the panel at the end of each quarter.
Computing the Index
The survey creates two indices to describe the remodeling market – the Current Market Conditions index and the Future Expectations index. Both indices encompass ratings for owner as well as rental-occupied housing. The current Remodeling Market Index is based on remodelers’ responses to: the market demand for remodeling at the present time compared to three months earliers (higher, about the same or lower) for major additions and alterations ($25,000 or more), minor additions and alterations (less than $25,000), and maintenance and repairs. The future expectations index is based on responses to: recent volume of calls for bids, the amount of work committed for the next three months (higher, about the same or lower), the backlog of remodeling jobs, and the number of proposals at this time compared to three months earlier.
To produce the indices first, the ratings for owner and renter-occupied properties were pooled by weighting the ratings by the average share of remodeling activity for owner and rental properties during the past five years. The average share of remodeling activity during 1995 - 1999 was 69% in owner-occupied properties and 31% for rental properties. Next, the share of major additions and alterations, minor additions and alterations and maintenance and repair were estimated for the last five years.
Score of responses to each component were used to calculate the overall indices for current market conditions and future expectations.
The Current Market Conditions index is based on three indices. Index number one, which is Major Additions and Alterations of $25,000 or more, has a weight of 0.30; index number two is Minor Additions And Alterations of less than $25,000 and has a weight of 0.40; and the Maintenance and Repairs index receives a weight of 0.30.
The Future Expectations index is based on indices four indices, which are Call For Bids, Amount of Work Committed For The Next 3 Months, Backlog of Remodeling Jobs, and Appointments for Proposal. The Future Expectations index is a simple average of the four indexes, so each index receives a weight of 25%.
Any number over 50 indicates that more remodelers view remodeling conditions as higher than the previous quarter. The indices are not seasonally adjusted because of lack of historical data. As we move along in this effort, we will introduce refinements and create a seasonally-adjusted series.
