Chart of the Day: Remodeling Soars

By Daniel Indiviglio

New home sales remain near their historical lows. Americans have been building so few homes for so long that some people are wondering if a housing shortage could result at some point in the future. The unusually weak demand for new homes serves as part of the reason for why millions of construction workers are unemployed. It could be worse, however. Some have found work remodeling homes instead of building new structures. In fact, remodeling hit an new high in May.

Here's a chart showing BuildFax's Remodeling Index:

remodelling index 2011-05.png

Should we be surprised to see so much remodeling paired with so few home sales? A couple of different reasons can explain this phenomenon.

First, quite a few homes over the past several years might have been knocked-down or abandoned in a normal housing market. But since buyers could obtain these properties at such deep discounts, they may have chosen to remodel them instead.

Second, foreclosed homes are often a disaster. Previous owners sometimes rip out and sell appliances or other valuable interior components of a home. Many of the huge number of foreclosures that have been purchased over the past few years need remodeling.

Finally, remodeling is a budget-friendly alternative to moving at a time when money is tight. Some Americans might want to improve their homes, but aren't willing to take the risk on buying a more expensive home while the economy remains fragile and home prices continue to fall. Others might not be able to sell their home in this market at a price that they can stomach, so they're staying put and remodeling instead.

For whatever the reasons, this trend provides a glimmer of good news for the construction industry. While building new structures would provide more jobs than remodeling, some work is surely better than no work.

h/t: Calculated risk

This article available online at:

http://www.theatlantic.com/business/archive/2011/07/chart-of-the-day-remodeling-soars/242134/