Higher homeownership rates and tax credits for energy efficiency will revive demand
Los Angeles, CA (PRWEB) August 02, 2012
The Remodeling industry's revenue foundation shook as the housing bubble burst, as consumers decreased spending on home improvements. Including do-it-yourself (DIY) projects, spending on home improvements is expected to fall at an estimated annualized rate of 1.5% over the five years to 2012, totaling $146.4 billion. According to IBISWorld industry analyst Olivia Tang, sharp increases in unemployment during the recession led to lower homeownership rates and less disposable income, causing homeowners to delay professional remodeling and turn to DIY projects, hurting industry demand. However, since 2011, firms have benefitted from increased consumer disposable income. As a result of low mortgage rates, the percent of homeowners is expected to grow for the first time since 2007 to 66.7% in 2012. In addition, stabilizing home prices support homeowners' ability to finance remodeling projects. Despite revenue growth of 17.9% in 2012, it will remain well below pre-bubble levels; revenue is expected to fall at an annualized rate of 10.5% over the five years since 2007, bringing the industry total to $41.3 billion.
Falling demand required firms to intensify price competition to attract new projects, causing profit to contract from 21.0% of revenue in 2007 to 17.5% in 2012. Smaller firms especially suffered from poor conditions because their services are more easily substituted by DIY projects. This decreased revenue for smaller firms caused a higher rate of industry exits. Consequently, the number of enterprises is expected to fall 11.6% per year over five-year period to 2012. Firms also hired fewer subcontractors to curb costs, reducing the number of workers at an annualized rate of about 9.8% during the same period. During the five years to 2017, industry recovery will be driven by improvements in employment and, therefore, per capita disposable income. “Housing prices are expected to increase, allowing demand for industry services to rise because homeowners often leverage the value of their home through loans to fund remodeling projects,” says Tang. In addition, despite projected increases in mortgage rates, they will remain below historic levels. As a result, the percent of homeowners will increase in 2017, expanding the amount of potential clients. Furthermore, tax credits to homeowners for energy-efficient remodels will likely be a source of industry growth over the next five years. Consequently, revenue is projected to climb during the next five years.
The Remodeling industry has a particularly low level of concentration. The top four largest firms account for less than 5.0% of industry revenue in 2012. Only about 0.1% of firms employ greater than 100 workers. Conversely, the majority of industry operators are smaller firms that specialize in specific regions or industries. In fact, about 84.0% of enterprises contain fewer than five employees. Non-employers' account for about 43.0% of this total demonstrating the highly fragmented nature of the industry. For more information, visit IBISWorld’s Remodeling in the US industry report page.
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IBISWorld industry Report Key Topics
This industry is primarily engaged in remodeling construction for residential buildings. Remodeling construction includes additions, alterations, reconstruction, maintenance and repair work. This industry is composed of general contractors, operative remodelers, remodeling design-build firms and remodeling project construction management firms. This industry does not include commercial remodeling.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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