Growth of remodeling activity slowed moderately in the third quarter of 2005, according to the National Association of Home Builders’ Remodeling Market Index. Today’s third-quarter results receded from the seasonally adjusted second quarter of 2005, but remained in the positive growth range.

“A softening of the overall rental market has led to an acute decline in rental remodeling expenditures,” said Remodelors Council Chairman Don Novak, a remodelor from Cedar Rapids, Iowa. “Remodeling activity remains strong for owner-occupied units, driving the continued positive outlook.” Owner-occupied housing represents 69 percent of total housing in the U.S.

The RMI is derived from a quarterly national survey of more than 500 remodelors and is seasonally adjusted. The current market conditions index dropped one and a half points from 52.4 to 50.9, while the future expectations index moved down from 52.8 to 51.8. Both indexes continue to signal positive growth in remodeling outlays.

Regionally, the Midwest’s strong growth was offset by slight declines in the South and West and a sharp drop in the Northeast. Current market conditions in the Midwest improved from 44.7 to 50.2. The Northeast dropped from 59.1 to 43.6. The West and South moved from 58.5 to 56.3 and 55.7 to 53.7, respectively. 

“The small declines in the overall RMI measures of current market conditions and expectations for the future reflect relatively firm readings for owner-occupied housing but serious deterioration for the rental housing market,” said NAHB Chief Economist Dave Seiders. “A massive amount of equity in the hands of homeowners bodes well for this segment of the remodeling market down the line, and declining vacancies in rental housing should improve the prospects for remodeling of the rental stock before long. Furthermore, remodeling activity will be stimulated by recovery from this year’s unprecedented hurricane damage.”

Owner-occupied units saw almost no change in current market activity by dropping one-tenth of a point to 56.2. Renter-occupied units declined from 45.8 to 37.9. In the futures expectation index, owner-occupied units again saw little change from the second quarter by moving from 55.8 to 55.4. Renter-occupied units dropped sharply from 43.0 to 31.0.

The RMI “special questions” section delved into remodelors’ plans for growing their businesses. Remodelors expect their dollar volume to grow by 11 percent to an average of $1.35 million in 2005, up from $1.21 million in 2004. Fifty-eight percent of remodelors plan to grow their businesses organically, while 4 percent plan to grow via acquisition or merger. Four of 10 businesses have no plans to expand into other areas of work or new geographic regions. Approximately 11 percent of remodelors have been approached to be acquired by another business, indicating a low likelihood for major consolidation in the industry.

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