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REMODELING DULL, BUT LONG-TERM PROSPECTS BRIGHT

Although remodeling has been spared the dramatic declines plaguing other sectors of the housing industry, it has nevertheless stalled out and little or no real growth is expected in the near future, according to experts at the recent semi-annual construction forecast conference held by the National Association of Home Builders.

"Remodeling is not as cyclical as new construction," said Gopal Ahluwalia, assistant staff vice president and director of research for NAHB.

"However, it is subject to many of the same factors that affect new construction and the rapid growth in remodeling that we saw in the mid-1980s has leveled off. The next few years should show no real gain in remodeling expenditures when adjusted for inflation."

Total expenditures for the three components of remodeling -- maintenance, additions and alterations, and major repairs -- are expected to be about $105 to $107 billion in 1990, reflecting little or no real gain in inflation adjusted dollars over the $101 billion spent in 1989, Ahluwalia said.

Remodeling expenditures are expected to increase about three percent in 1991. When adjusted for inflation, that means a slight drop in real remodeling expenditures.

According to Gregory Nejmeh of Shearson Lehman Brothers, a number of factors are contributing to today's slowdown in the remodeling market. There is a high correlation between home sales and remodeling expenditures, so when sales drop off, remodeling does too.

Nejmeh also pointed out that changes in real estate prices and remodeling expenditures appear to be related, so less appreciation in home values implies lower remodeling revenues.

The enormous size of the remodeling industry also "renders rates to gain statistically even more difficult," Nejmeh said. And he pointed out that economic factors such as the "credit crunch," lender concerns about real estate values, and home owner concerns about job security may slow remodeling expenditures.

Additionally, consumer confidence has been shaken by events in the Persian Gulf and consumer debt is very high by historic standards, Nejmeh said.

Barbara Alexander, managing director of Salomon Brothers, Inc. concurred that home owners might face a "credit crunch" of sorts in securing financing and speculated that lenders may clamp down on home equity loans and restrict one of the major sources of financing for remodeling.

Although remodeling expenditures have stalled out at present, there are many encouraging signs portending a positive future, the panelists said.

"Studies show that members of the baby boom generation have less and less time at their disposal," said Ahluwalia. "This means that consumers will attempt fewer do-it-yourself projects and will increasingly turn to professionals for remodeling work."

His opinion was echoed by Nejmeh, who pointed out that increasing numbers of two earner families will mean greater demand for professional remodeling services.

Kermit Baker, director of economics at Cahners Publishing Company, noted that people aged 30 to 54 are much more likely than other population groups to get involved in all types of remodeling jobs and agreed that the aging of the baby boomers portends well for remodeling.

Baker added that the nation's top remodeling markets have traditionally been in older metropolitan areas, generally in the Frost-belt, with an aging housing stock.

However, several West Coast markets are showing dramatic increases in remodeling activity. And he predicted that in 1991, the nation's top 10 remodeling markets will be Los Angeles/Long Beach; Chicago; Washington, D.C.; San Francisco; Philadelphia; Detroit; New York; Baltimore; San Diego and Newark.

Offering a professional remodeler's point of view, Tom Swartz of Decatur, Ill. said that within the next five years the face of the remodeling industry will change dramatically. Swartz, the third generation owner of the J.J. Swartz Company, said that franchise remodeling operations are likely to emerge as a force in the market and that professionalism in the industry will increase.

He also said that manufacturers will increasingly cooperate with and market their products to members of the remodeling industry and that as do-it-yourself business drops off, home centers will tailor their operations to professional remodelers.

The future will also see remodeling become more "industrialized" as its members become more professional and embrace computer technology, Swartz said.

"The hottest niches in the remodeling market will be design building, 'handyman,' window replacement, cabinet upgrades and closet remodeling," Swartz said, "and women will play an increasing role in the remodeling industry."

He added that consumers will become increasingly difficult to satisfy and they will be willing to pay more to ensure quality, value and professionalism in their remodeling jobs. In addition, they are very brand conscious and brand names will dominate remodeling jobs during the '90s.

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