The construction industry forecasts are cautiously optimistic.
[dropcap style=”letter” size=”52″ bg_color=”#ffffff” txt_color=”#2444e5″]F[/dropcap]orecasting can sometimes seem like a roll of the dice, but fortunately there are people all over the world who have turned the science of forecasting into an art form.
Projecting what’s ahead, how, and when has several moving parts. These economic experts are constantly studying a wide range of signs, movements, and reactions to compare with historical data and patterns. Before they roll out any forecasting, they know it’s got to have a very high probability of being correct because their reputations – and their clients’ businesses – are at stake.
To produce forecasts for the lighting industry, these are just a few of the variables studied by economists:
Real estate and construction trends
The impact of technology on industries
Numerous organizations publish annual data designed to help related businesses stay ahead of the changing economic landscape — but rather than having you spend valuable time hunting them all down, we did it on your behalf. In this article, we’re sharing some of the more relevant data from reliable sources to help you navigate the road ahead in 2019.
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“Rates of new home construction and renovation are anticipated to grow between 5 and 7 percent annually through 2019.”
Home Prices Up, Affordability Down
Earlier this year the National Association of Home Builders (NAHB) predicted the economy would continue strengthening and that 30-year fixed-rate mortgages will average 4.82 percent in 2019, slightly higher than their forecast of 4.31 percent for 2018. NAHB also forecasts an additional 5-percent increase in single-family start-up builds. Each of those 940,000 predicted homes will need lighting, plumbing, and décor. Have you been keeping an eye on the local developments in your area and partnering with builders?
Drilling down further on those numbers, while home construction may increase, a look on the buy-side is equally important. Like NAHB, CoreLogic Chief Economist Frank Nothaft also expects mortgage interest rates and home prices to moderately increase, which in turn will lessen housing affordability.
“Higher rates are not just a gradual erosion of affordability, but also impact owner mobility,” Nothaft says. “That has implications on the overall inventory for sale. Supply has been tight and for-sale inventory will continue to remain tight.”
Tight inventory in the housing market will cause home and rental pricing to increase and outpace inflation, according to Nothaft, who expects nationwide home prices to rise approximately 5 percent and rental properties to be up 3 percent in 2019.
The biggest growth areas for these new home sales are the South and West, where many of these metro areas have positive job growth, better affordability, and good weather. Nothaft points out seven major markets that will particularly benefit:
What About Remodeling?
Beyond new home sales, there is also much to consider in the remodeling category. According to new research and a recent report from the National Kitchen and Bath Association (NKBA), the remodeling of American kitchens and bathrooms is an annual $31-billion industry — which equates to about 25 percent of the overall $121 billion U.S. remodeling market.
On this front, NAHB is posting strong market conditions, partly because of the significant damage that typically follows the hurricane and wildfire seasons. While these are extremely unfortunate situations, they are a reality and our industry is one that has the opportunity to help people rebuild their homes and lives.
As of press time, residential remodeling activity was expected to register a 7-percent gain by the end of 2018 over the previous year. NAHB predicts that remodeling spending for owner-occupied, single-family homes will have increased 4.9 percent in 2018 over 2017 with an additional 0.6 percent expected in 2019. While this is not a huge increase, it is an increase nonetheless.
According to the much-lauded and comprehensive NKBA Size of the Industry Report, homeowners remodel approximately 1.8 million kitchens and 2.5 million bathrooms each year.
The Report emphasizes the importance of following annual new home construction figures, citing that annual new home construction adds roughly 1.2 million kitchens and 2.8 million bathrooms to the marketplace. An increase in one will create an increase in the other.
Other findings include:
Rates of new home construction and renovation are anticipated to grow between 5 and 7 percent annually through 2019.
Residential construction and remodeling continue to outpace the commercial sector, as well as the residential repair market. Overall, commercial construction continues to dwarf its residential counterpart.
Year-over-year growth in the multi-family housing construction market is expected to be surpassed by single-family construction in 2018 and continue through 2019.
The forecast for the remodeling sector would not be complete without checking in with Metrostudy, the firm that maintains the nation’s most comprehensive database of housing market information.
In its latest Residential Remodeling Index (RRI), Metrostudy combines several economic indicators that point to increased prosperity for the remodeling industry with an increase in both projects and jobs throughout 2019.
Showing a more modest forecast for remodeling, the Harvard University Joint Center for Housing Studies reports that annual growth in national home improvement and repair spending is expected to soften in 2019, according to their Leading Indicator of Remodeling Activity (LIRA)*. The Harvard LIRA projects that year-over-year increases in residential remodeling expenditures will start to drift downward from a 7.7-percent high at end of 2018 to 6.6 percent by the third quarter of 2019.
Rising mortgage interest rates and flat home sales activity around much of the country will pinch the otherwise-strong growth in homeowner remodeling spending, according to LIRA. Low for-sale inventories will present issues because home sales tend to spur investments in remodeling and repair both before a sale and in the years following.
However, the Joint Center for Housing Studies states that other remodeling market indicators – such as home prices, permit activity, and retail sales of building materials – continue to strengthen and will support above-average gains in spending for 2019. Through the third quarter of 2019, annual expenditures for residential improvements and repairs by homeowners is still expected to grow to $350+ billion nationally.
Who’s Doing What, Where, and With What? The Demographics of Home Repair and Remodeling
Even with all the statistics and trends, there can still be market fluctuations that impact decisions regarding buying, selling and, of course, remodeling homes. It’s crucial for showrooms to know their consumers and the types of projects they might be undertaking and when they plan to begin.
Pam Danziger of Unity Marketing Group, who studies some of the world’s most powerful luxury consumers, has written a number of books, including several that focus on selling to the HENRY (High Earner, Not Rich Yet) generation. She has outlined a variety of ways this affluent group spends their money — and it is not always as one might think.
The term HENRY first surfaced in 2003 as marketing jargon to identify consumers with an average household income of $100,000 to $250,000, and investable assets less than $1 million. In 2015, HENRY was lauded as the “gatekeeper to the luxury market,” and retailers dubbed HENRY the “next high-value consumer demographic.” This makes sense. The path to adult affluence most likely begins for most as a HENRY.
The HENRY demographic – with its cross-generational borders that include Millennials and Xennials – remains a relevant and viable target today. Current HENRYs tend to be between 28 and 40 years old and represent a sub-segment comprised of both upper-spectrum Millennials (the new Xennials) and latter-end Gen Xers.
This might leave you thinking, where do they fit? The answer is: Everywhere and anywhere they want to fit!
As we kick off 2019, we need to be mindful of some of the cautionary tales and focus on steady growth. More importantly, there are interesting and innovative ways to segment and market to consumers, whether they are buying, selling, or staying put.
Home projects will depend on generation, family size, and need. Understand that HENRYs cross some of these lines as we examine the graphics.
When market conditions shift and selling/buying is not an option, home improvements become the focus. The scope of these projects will vary depending on the age of the home.
Lastly, needs will vary depending on region as there will be weather and seasonal considerations and impact.