International Door & Operator Industry

MAR-APR 2018

Garage door industry magazine for garage door dealers, garage door manufacturers, garage door distributors, garage door installers, loading docks, garage door operators and openers, gates, and tools for the door industry.

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MANAGEMENT 46 International Door & Operator Industry™ (continued from page 44) Revised Recognition of the Scope of Home Improvement Spending Many organizations and agencies regularly generate macroeconomic estimates of construction spending for residential remodeling and improvements. However, for a variety of reasons, such estimates have been notoriously inconsistent, understated and excessively volatile. The Construction Spending Value Put in Place (VPIP) data published monthly by the U.S. Census Bureau (USCB) is the standard reference for nearly all construction forecasting, but the residential improvement sector of that database has always been conspicuously understated. Remodeling expenditures reported in the biennial American Housing Survey (sponsored by the U.S. Department of Housing & Urban Development but conducted by USCB) are as much as 50% greater than the VPIP numbers. In early 2016, the USCB revised ten years of private residential improvement information to correct a long-standing processing error, but the data continue to exclude most replacement and maintenance expenditures. This is difficult to reconcile since homeowner funding for major replacement components (e.g., doors, windows, cabinetry) comes from the same discretionary spending pattern as structural remodeling. Organizations such as the National Home Builders Association (NAHB) and the Home Improvement Research Institute have also developed useful remodeling forecasts. Most importantly, beginning in 2007 the Harvard Joint Center for Housing Studies (JCHS) developed a quarterly Leading Indicator of Remodeling Activity (LIRA). Initially, LIRA focused only on home improvement spending (i.e. contracted remodeling), but following a 2016 re-benchmarking, the Indicator encompasses maintenance and repair spending which generates a more comprehensive market size definition. 1 As a consequence, LIRA has become the most widely utilized measure of residential improvement spending. For 2018, the LIRA projection indicates that annual increases in remodeling spending will hover at or near 6.9% through the second quarter, and will expand to a 7.5% growth factor by the fourth quarter. JCHS notes that "… residential remodeling continues to benefit from a stronger housing market and, in particular, solid gains in house prices, which are encouraging owners to make larger investments in their homes." In dollar terms, national spending on improvements and repairs to the owner-occupied housing stock is projected to reach $324 billion in mid-2018, and $339 billion by year's end. The 2017 residential retrofit garage door market noted above for 2017 ($3.45 billion at installed value) is approximately 1.13% of the 2017 LIRA value. There is no reason to believe that the relationship will change, thus a logical projection for 2018 is a $3.67 billion market for residential retrofit doors (replacements and additions). Owner occupied housing units constitute over 91.0% of the garage doors identified in the first table above (adding the owner-occupied portions of mobile homes and multi-unit dwellings to the identified single-unit total), so relating total demand for residential retrofit doors to the JCHS projection is statistically acceptable. The re-benchmarked Harvard Joint Center for Housing Studies (JCHS) Leading Indicator of Remodeling Activity (LIRA) is a very useful tool for projecting related garage door demand. The LIRA is very consistent with ZCI's own evaluation of the total market for residential renovation and remodeling, and provides a very comfortable basis for forecasting going forward. 1 A comprehensive review of LIRA may be found at the JCHS website: http:// jchs,harvard.edu For readers interested in the statistical apparatus underlying LIRA see Abbe Will, "Re- Benchmarking the Leading Indicator of Remodeling Activity", April 2016, JCHS Research Note John E. Zoller and David H. Bowen comprise Zoller Consulting, Inc. of Wooster, Ohio. Zoller Consulting provides consultation of managerial effectiveness and financial performance of construction related businesses. They also offer customized seminars and training sessions. In addition, Zoller Consulting provides acquisition management, including finding buyers or sellers, locating funding sources, transaction structuring, and negotiating and organizing the transition to new ownership. Contact Zoller Consulting, Inc. at 330.262.8500 or John@ zollerconsultinginc.com.

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