Boomers and the Home Improvement Market

NEW YORK (Minyanville) -- The home improvement industry peaked in 2007, well after the housing bubble burst, but before the financial system came crashing down. Back in those days, lenders like Chase(JPM_), Bank of America(BAC_) and Wells Fargo(WFC_) urged borrowers to tap into equity lines of credit for home improvement projects (and practically anything else they wanted to spend the money on).
But alas, housing values plummeted, foreclosures rose, financial institutions crumbled and many Americans minds quickly shifted from home improvement to simply keeping up with mortgage payments. The Leading Indicator of Remodeling Activity (LIRA) released in April by the Joint Center for Housing Studies (JCHS) of Harvard University projects annual growth on renovations will slow throughout the year, with spending up only 0.2% in 2011.
Baby boomers, however, are an exception. They helped to propel the national homeownership rate to historical highs. These long-time homeowners have continued to spend on home improvement, using their established home equity. They've got power in numbers, and they're poised to make quite an impact on the home improvement market for years to come.
The actual population size of baby boomers is estimated to be between 76 and 79 million; the first baby boomers turned 65 in 2010. Over the next two decades, this massive demographic of Americans ages 45 to 64 will turn 65, and their lives will reflect all the changes that "retirement age" brings. As a result, their influence on future housing turnover will be widespread throughout our country's cities, suburbs, and rural communities.
While upper income homeowners' spending on home improvement has stalled with the housing market, older homeowners scaled back spending the least since 2007, according to the JCHS. While upper income homeowners are often hurt the most by falling prices, baby boomers have usually lived in their homes long enough to have established equity, making them less sensitive to falling home values. They tend to spend more of their improvement dollars on replacement projects and system upgrades; two categories whose demand has also fallen the least since 2007.
A strong housing market and home improvement demand generally work in opposition. When new construction is strong, spending on remodels and improvement projects lags. A weak housing market generally strengthens the renovation market, albeit just slightly in the current economy.
"When housing markets crashed between 2005 and 2009, the remodeling share climbed to more than two-thirds of total residential investment," according to the JCHS. While it may take several years for the housing market to recover, the JCHS predicts that home improvement spending will increase by about 3.5 percent per year, until 2015.
Source http://www.thestreet.com/