Consumers have been taking on the residential market at a pace unseen since the housing boom of the early ’70s. According to U.S. Census Bureau figures, each year of this decade, except for a period following 9/11, the housing bubble grew exponentially, reaching historical highs one year ago this month with nearly 2.3 million housing starts.
Early in 2006, the economy served up a corrective cocktail of rising interest rates, inflated housing prices and sluggish inventories—a pretty strong shot to swallow. As a result, the housing bubble appears to have either contracted or, perhaps, burst.
“The market couldn’t stay at this record-setting pace. It had to come down. The question is how fast and how hard,” said Todd Michaelsen, manager of the National Electrical Contractors Association (NECA) Ohio/Michigan Chapter. Although the landing is still difficult to predict, the overall economy is still moving forward.
National Association of Home Builders (NAHB) Chief Economist David Seiders forecasts an 11.5 percent decline in housing starts this year, followed by another 11.7 percent drop in 2007. Housing should hit bottom by the middle of 2007 and will be approaching a demographically based trend production level of about 2 million units in 2008, including manufactured homes.
In October, Robert I. Toll, chairman and chief executive officer of Toll Brothers, one of the nation’s largest single-family custom home builders said, “The continuing malaise in the housing market, we believe, is the result of an oversupply of inventory and a decline in confidence. After 13 consecutive years of record earnings, we believe we are well-prepared to weather this downturn.”
Despite the fall in housing starts, electrical contractors remain optimistic about the growing opportunities the residential market represents in single and multifamily dwellings. The 2006 Profile of the Electrical Contractor Study conducted for this magazine reported that almost 60 percent of electrical contractors who perform residential work expect that work to increase over the next three to five years.
Karl Jensen of Portland, Ore.-based West Side Electric said new construction is only one slice of the pie.
“I expect our segments of residential work to increase over the next two years. If new construction slows locally, and it hasn’t yet, we typically see an increase in remodeling activity, and service/repair work is always constant,” Jensen said. “I also believe we’ll see continued growth in our audio/video/systems integrated division.”
Approximately 40 percent of Shamrock Electric Co. Inc.’s current business is residential, and the president of the Elk Grove Village, Ill.-based contractor, Frank Amabile, sees future strength in the residential market.
“Residential is the key to the whole country—the start engine. I think the residential market is going to slow down for a year, maybe two years. It needed it. Everything was getting priced out of range. I think you’ll see the market come back fastest in single-family homes,” Amabile said.
Late in 2006, Shamrock Electric had not felt the effects of the shifting market, primarily due to its large-scale, design/build residential projects ranging from subdivisions to inner-city loft conversions as well as the Classic Residences by Hyatt at the former Glenview Naval Air Station and a Del Webb Sun City senior community in the area.
“Where we’ll likely see the slowdown is when a couple decides to retire and move to a new transition property, and they can’t sell their home in the Chicagoland area,” Amabile said.
Remodeling boom creates opportunity
Working at a fever pitch in the shadow of new construction, the remodeling industry has also been booming. According to the National Association of the Remodeling Industry (NARI), the remodeling market, projected to be a $291.5 billion industry in 2006, is expected to continue to experience significant growth. It is estimated more than a million homes per year undergo major renovation or remodeling.
Tending to follow the cyclical nature of the housing market, by most accounts, the remodeling industry is better insulated to weather cool-down periods in the new construction market, says NARI President Everett Collier, certified remodeler, of San Francisco-based Collier-Ostrom Inc.
“The reason for this is we have a huge stock of homes on the market that are getting older,” Collier said. According to the U.S. Census Bureau, the average age of the nation’s housing stock was 32 years old in 2003, the oldest in history. It is projected to increase 37 percent by 2013.
“A lot of people don’t think you can get enough business in remodeling, but there’s an awful lot of work out there. It is a fast cash flow, lower risk and usually a better margin from the start, Michaelsen said. “We are very fortunate on the remodel side as a general rule. Homeowners tackle the drywall, paint and carpentry, but most are afraid of the plumbing, and they’re terrified of the electrical,” he said.
Electricians and remodeling experts alike point out every major housing modification involves electrical upgrades. Data gathered from the U.S. Census Bureau Housing Survey and Harvard University’s Joint Center for Housing Studies shows the strongest general remodeling trends reflect demand for electrical features such as modern or artistic light fixtures, cable TV in bathrooms, jet tubs, outdoor kitchens, outdoor speakers, home offices and media rooms.
Collier expects remodeling to slow only to a dull roar in the next year with regional spikes.
“The South and Southwest are going to be exceptionally strong because they have the largest housing stock coming into its prime for updating. Regional weather phenomena such as deadly hurricanes, and severe heat and cold causing power outages are motivating some homeowners to install backup power systems.
Key demographic groups will continue to drive the remodeling market. Baby boomers are the gorillas on the market as they enter their prime earning period. They have historically bought their own homes and, sometimes, second homes. As they age, boomers are now looking at transitional homes and communities and will be attracted to universal design trends that will better accommodate their needs.
Collier also expects two emerging demographics, Generation X and immigrants, to greatly influence culture and remodeling trends. “A lot of boomers were from the hippie generation. We were independent and into doing things ourselves. Generation Xers would rather have time in front of their computers and Xboxes. As they creep into their remodeling years, around 35, they’re going to be spending even more money than the boomers did at that age,” he said.
Hispanic immigrants are another demographic that may influence remodeling. With strong family values and interests, experts speculate this growing demographic will require additions to accommodate extended family members.
“In this country, 25 percent of homes are being purchased by immigrants with joint families. In many of these households, there are three generations living together,” says Gopal Ahluwalia, NAHB staff vice president for research.
Smart home technology
Many more homes are being built with low-voltage structured wiring to provide built-in plug-and-play home networking and control systems capabilities. Jason Sherrill, product manager of structured wiring, wireless technologies and energy protection at Cooper Wiring Devices, is seeing more homeowners desiring a structured wiring platform installed in conjunction with an integrated control system that provides easy access to typical lighting and A/V functions while “future-proofing” their new home.
“We’re providing electrical contractors with a solid foundation by offering MediaSync, a line of structured wiring products, and expanding upon that with the wireless capabilities of ASPIRE RF. These technologies give contractors the ability to offer homeowners freedom and interoperability in both new construction or remodels,” Sherrill said.
“The biggest trend we are seeing is the demand for technology from programmable lighting controls to voice/data networks and audio/video. In many cases all of these systems are integrated through one master system where the owner can control and change settings from single touchscreens located throughout the house,” said West Side Electric’s Karl Jensen Increasingly, electricians are taking advantage of these smart technologies. A total of 62 percent of the electrical firms participating in ELECTRICAL CONTRACTOR’s residential survey do residential automation/control system work, a substantial increase over 2004. Parks Associates, a research firm specializing in digital and home networking markets, reports that approximately 17 million U.S. households were using data networking solutions at the end of 2005, and that the number is expected to jump to nearly 40 million by 2010.
“Sharing broadband access will continue to be dominant, but many more households will be storing content like pictures, music and data files on centrally networked attached servers,” said Bill Ablondi, Parks research analyst. The next step, Ablondi said, is distributing audio and video around the house. “In time, homeowners will monitor households with sensors and Internet protocol cameras followed by controlling systems such as lights and HVAC systems.”
Cooper’s new wiring devices provide interfacing to manage energy-consumption. “The attractiveness of controls and aesthetics is still growing as well as the push on energy conservation. Folks are looking to products like occupancy sensors, compact fluorescent lamps and dimming ballasts to save energy costs with prices being as high as they are,” said Matt Conger, Cooper’s lighting controls product manager.
“Green building and green remodeling is starting to capture interest, and we’re going to see a big boom in that field, too. The greatest emphasis is on energy savings now and Title 24, but the next wave will be photovoltaics. It’s a big area for electricians coming down the pike,” said NARI’s Collier.
Regardless of how the residential market trends, the future is bright. The highs are opportunities, and the lows are opportunities.
“The value of some residential contractor companies is going to drop through this downturn. Others will acquire those companies that have been successful and have a good customer base. It’s good to diversify the risk with residential and commercial because they do tend to walk in separate cycles,” Michaelsen said. EC
MCCLUNG, owner of Woodland Communications, is a construction writer from Iowa. She can be reached via e-mail at email@example.com.