Understanding the relative strength of a geographic area for both new construction and remodeling activity provides a perspective for a building materials supplier, distributor or dealer to assess specific opportunities to pursue. The Residential Construction Vibrancy Index was developed by Principia to address this need by normalizing the importance of new construction activity and remodeling in each region according to the number of existing homes in the area. New construction is calibrated by dividing the number of new housing permits in a time period, in this case 2017, by the number of existing homes in that region. This measure provides a perspective of the degree to which the overall housing market is growing in the area as new homes are added. Existing home sales are often a gauge on remodeling activity as the seller may remodel to position the home for sale including increasing the curb appeal with new exterior improvements, painting or upgrading the interior. Alternatively, the buyer may remodel after the purchase either rolling some of the costs into the mortgage or home equity loan or paying cash to bring the home up to date. Dividing the existing home sales into the overall existing home base provides a measure of turnover, or the degree to which home inventory is changing hands in the time period.
New permits and existing home sales divided by existing homes for each Census division are plotted in the graphic below. The size of the circle reflects the number of homes in the division which enables a calibration of the size of the market opportunity for each. The national average of new homes is 1.2% of the existing base, or roughly 1.3 million new permits out of 128 million existing homes. On the other hand, over 4% of existing homes turned over on a national basis. This first observation explains why for many building product categories, the remodeling market is 3-4X the size of the new construction market. In product categories like roofing, the installed base provides a steady and stable revenue stream from roofs that wear out in a normal life cycle of around 20 years.
The graphic is also color coded by region to show distinctions among different parts of the country. By comparing a region’s new vibrancy against its existing or remodeling vibrancy, building materials suppliers can assess which job type, building product category or even customer type to pursue. For example, in the Northeast region (i.e. New England and Middle Atlantic divisions), construction vibrancy is lower than the rest of the country for new and existing jobs. However, the region has a large installed base of existing homes, providing a strong stable market for building materials, particularly in the remodeling segment.
On the other hand, the West South Central division which includes Texas has the highest new construction vibrancy index at nearly 2% of existing homes which indicates that just from new home construction, the market is expanding by 2% year over year. On the other hand, the West South Central division is right on the national average in existing homes. Of course, within a region or division, individual states or cities can be calibrated in the same manner and may show significant differences. For example, Dallas and Austin are well above the new construction vibrancy average while Houston and San Antonio are just around the average overall.
In the Midwest, both divisions (i.e. East North Central and West North Central), are below average in new construction vibrancy, with the much larger East North Central (IL, OH, MI, IN, WI) well below at just about half the national average. However, both regions are above the average for existing home turnover. In fact, the East North Central has one of the largest installed home bases of any division and represents a strong opportunity for remodeling activity.
Principia monitors homebuilding and remodeling/ repair activity through its vibrancy index across the country, and evaluates any geography down to the zip code level to compare one area to another and help evaluate business development tactics. We plan to publish periodic updates and welcome your feedback on this unique view of the market. Click here for more information on Principia’s data analytics and custom consulting focused on the building materials and construction industry.