Real estate remodeling as a leading indicator for stocks

Report reveals 4 US cities' surprise economic strength

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Aug. 19, 2011

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Then the sky turned cloudy. The Hanley Wood first-quarter report noted: "The third quarter (2010) ran out of steam, and the fourth quarter registered a decline. Now 2011's first quarter is showing nationally that activity slowed further, registering at 2009's low point."

To find out what was going on, I called Jonathan Smoke, Hanley Wood's executive director of research.

The first thing he did was school me on the facts of life for remodeling. "Many people believe (I was one of them) that remodeling and replacement activity is inversely correlated with new construction, meaning that when new construction is down, remodeling does well," Smoke said. "Inversely, when construction takes off, remodeling does not. That's simply not true."

In actuality, remodeling and new construction rise and fall together, and an increase or decrease in activity is all tied to things like job growth, income growth and consumer confidence.

These past two years have been an interesting roller-coaster ride, said Smoke. "In the first half of 2010, activity started to improve. At the time, the economy was doing better and we were optimistic remodeling activity would increase. Then declines happened in the fourth quarter ... and first quarter this year."

The problem, as perceived by Hanley Wood, was a volatile mix of declining consumer confidence, house prices continuing to dip, and worries about unemployment.

Smoke tries to stay optimistic. "We will be flat in the second quarter and maybe we will finally see some gain by the end of the year," he said.

Just out of curiosity, I asked Smoke which U.S. markets were currently tops in remodeling. I wasn't surprised to learn that the Texas cities of Houston, Dallas and Austin were No. 1, No. 2 and No. 4, respectively.

Denver popped up at No. 5, Boston at No. 7, and Seattle No. 10. The remaining four cities were the surprises, as all were in the middle of the country: No. 3, Minneapolis; No. 6, Kansas City; No. 9, Oklahoma City; and, coming in at No. 8, Columbus, Ohio, home to Dave Fox Design/Build Remodelers.

The center of the country is experiencing a relatively strong economy, with a lot of strength in agriculture and commodities, Smoke said. "The healthiest markets are performing better than the national average, and some markets are seeing increased activity already."

Jacob, of Dave Fox Design/Build Remodelers, may be nervous about the year ahead, but he's still in a good spot geographically.

Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "Growing Up Levittown: In a Time of Conformity, Controversy and Cultural Crisis," is now available for sale on Amazon.com.

Contact Steve Bergsman:
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