Thursday, January 17, 2013

Pent-up demand for new homes is boosting construction, but another market will see growth as well

As discussed earlier (see post), household formation and historically low new home inventory (see post) is stimulating construction of new homes in the US. The large shadow inventory, which many view as holding back resi construction, is simply converting some portion of homeowners into renters. But for every renter there is an owner - and there are just not enough existing homes for sale. That's why US housing starts hit a new post-recession high.

Source: Econoday

Pent-up demand for construction however is not the only market stimulated by adjustments in demographics. Demand is growing for home renovation as well. Since very few new homes have been built recently, the median age of US homes is rising, requiring additional maintenance.

Average age of home in the US (source: Merrill Lynch)

Furthermore, as homes change hands to younger owners, the need for renovation increases. That's because older homeowners spend half the national average on monthly maintenance.

Spending on monthly maintenance (source: Merrill Lynch)

ML: - Because the elderly (who own 27% of homes) have been in their homes for much longer than the rest of the population (24 years vs < 10 years overall), they tend to own somewhat older homes. However, they spend less to maintain them than other groups and only half the national average. Updating and maintenance of elderly-owned homes will help drive remodeling demand for years to come.
Other factors will also contribute to increasing demand for home renovation, such as the need to make homes more energy efficient. A number of large firms (we all know who they are) will be the direct beneficiaries of this growth market, but the trend should also benefit a variety of small businesses across the country.

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