Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
This WSJ story is in line with a piece I wrote early in the month regarding the massive move in anything home building/home remodeling since October, and accelerating of late. While we just finished off yet another horrid year in new home builds, the market only seems to care about direction rather than magnitude and is of the belief there is a bottom here. Some of this also may be due to whispers of a massive Obama program coming to sell huge tracts of Fannie/Freddie owned properties to big time investors. I don’t see how that gets new homes built/sold but I am not going to argue with the market when it has its mind behind something. Fundamentally, I am more behind the remodel/refurbish ‘mini-boom’, as I wrote on Jan 9th:
I can also get behind the refurbish thesis as not only is foreclosed housing stock in need of repair/upgrading, but many now seeing they are underwater and stuck in their current home for a long time will turn to upgrading it.
Ironically any massive government program to sell agency inventory to investors would be even more of a boon to the companies that provide “housing stuff” … rather than the less clear relationship to the actual home builders. But for now both groups are running rampant together.
The WSJ takes a deeper look:
- Economists forecast that spending by homeowners and landlords on everything from minor sprucing up to full-scale remodeling rose modestly in 2011. That would mark the first year since 2006 that such spending increased. Forecasting firm IHS Global Insight is predicting a 3.3% increase to $152.4 billion in 2011, not adjusted for inflation, and an additional 5.7% in 2012. T
- An index of remodeling activity compiled by BuildFax has climbed steadily from 103.3 a year ago to 137.9 in November, the latest available data. The index fell between October and November, likely due to seasonal factors, BuildFax said.
- “People are remodeling instead of moving,” said David Crowe, chief economist at the National Association of Home Builders. “There was a time when people were waiting for the other shoe to drop, now they realize it’s just going to be a long slog so they might as well enjoy it,” said Glenn Kelman, chief executive of Redfin Corp., a real-estate brokerage based in Seattle.
- Most of today’s renovations aren’t sweeping: They are more likely to feature new lighting or updated kitchen cupboards, rather than an extra bathroom. With home prices still battered, and with many owners unable to get bank loans because they owe more on their residences than they are worth, few are undertaking major projects.
Remember this stimulus for the economy? I used to call it the house ATM. Thankfully it has been replaced by the government ATM. Nothing a 2% FICA tax cut … or rebate check… or $787B stimulus… or a million more on disability… or (well you get the point) can’t fix.
- During the third quarter of 2011, homeowners took out around $5.3 billion in home equity from their homes by refinancing prime mortgages, according to Freddie Mac, down from $6.3 billion in the second quarter and far below the peak of $83.7 billion in the second quarter of 2006.
Quite amazing statistic:
- Spending on single-family home construction has fallen so far that individuals now spend more on home improvements than builders do on new-home construction. At the peak in 2005, $434 billion was spent on single-family homes, more than two-and-a-half times the $164 billion spent on home improvements. In the third quarter of 2011, improvement spending was 42% higher than single-family home construction.
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