NAHB: Remodelers' margins widen as recovery continues

Dive Brief:

Residential remodelers, on average, saw their net profit margins rise to 5.3% in 2015 as compared to 3.0% in 2011, according to a report by the National Association of Home Builders citing the group's 2017 Remodelers' Cost of Doing Business Study.
The data revealed that remodelers turned in, on average, $1.8 million in revenue in 2015. Of that figure, $1.3 million (71.1%) went to labor, materials and subcontractors, leaving around $500,000 (28.9%) in gross profit. Remodelers spent $420,000 in operating costs, leaving a net profit of $95,000 (5.3%).
Gross and net profits for remodelers in 2015 topped the figures recorded in 2011 and 2003.

Dive Insight:

Residential remodeling spending hit its highest level to date at $361 billion in 2016, according to a recent report by the Joint Center for Housing Studies of Harvard University. The market is set to heat up, with forecasts predicting annual growth of 2% in the category through 2025, according to the JCHS.

Demographically, baby boomers and millennials are expected to take the largest shares of that spending. Boomers, alone, could see spending figures soar from 31% of total remodeling costs posted in 2005 to 56% by 2025. While boomers are projected to remodel for ease of accessibility, analysts predict millennials will gain a foothold in the market by buying homes in need of renovation and focusing their efforts on features such as energy-efficiency, healthy materials and smart-home systems. Aging in place upgrades, in turn, could be a boon for remodelers who service members of aging demographics unwilling or unable to move.

Though the National Association of Home Builders' Remodeling Market Index dipped four points from the third to the fourth quarter of 2016, the index hasn't dropped below the breakeven mark of 50 for 15-consecutive quarters.

And while the most recent quarterly report could signal a slowdown, observers are optimistic that rising home values could sway owners to invest in remodeling projects that could yield bigger returns on their investments. In January, the JCHS's Leading Indicator of Remodeling Activity posted a 6.7% increase in remodeling spending during 2016's fourth quarter and forecasts similar quarterly hikes throughout 2017.

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