Home price rise spurs rush to remodel

Retail industry battered, but spending on building materials, garden supplies is up

With Bay Area home prices continuing to surge, so is spending on home-improvement projects, lifting the fortunes of a retail industry that has been roiled by widespread closures and disappointing sales across apparel companies and department stores.

A recent report from the U.S. Commerce Department shows that sales in the category of building materials and gar-

den equipment supplies for the first four months of 2017 are up 5.9 percent from 2016, while clothing retailer sales are down 1.1 percent and department store sales down 5.2 percent for the same period. Stock prices for Home Depot, Lowe’s and paint company Sherwin Williams are also up this year so far.

Experts attribute the boost in that sector to the increases in spending on home improvement, and while that is happening across the country in general, it’s especially strong in the Bay Area, thanks to high home values.

Indeed, home prices, which have surged in recent years, reached record highs in March in Santa Clara and Alameda counties. According to the CoreLogic real estate information service, the nine-county Bay Area saw the median home price for a single-family, previously owned home hit an all-time high of $800,000 in April.

“In the San Francisco Bay Area, you’re talking about some of the most expensive housing prices in the country, and home prices have gone up dramatically,” said Brad Hunter, chief economist at HomeAdvisor, a website that matches people with home-improvement professionals. “We’ve seen a huge increase in the amount of homeowner equity, which stimulates home-improvement activity. It makes people feel richer, wealthier and more inclined to invest in their house.”

The increased equity allows more access to home equity lines of credit and loans for those who need it, Hunter said, and it brings people who were formerly underwater in their mortgage back to a position where they can sell their homes and move — stimulating more home-improvement spending from home sellers and buyers.

A report from Harvard’s Joint Center for Housing Studies shows that the New York, San Francisco, Denver, Boston and Washington, D.C., metro areas were the nation’s five top-ranked remodeling markets.

Dan Walsh, a former general contractor who is handling a home renovation for a friend in Walnut Creek, said the trend in home-improvement spending is cyclical.

“It goes with the economy,” he said, adding that whenever home values go high, his fellow construction professionals see a ton of demand for their services in renovating homes. “Right now, they’re busy.”

Home projects up

Heather Smith, a Martinez resident, has been working since October on a home renovation that includes a kitchen and bathroom revamp, as well as smaller projects like painting and installing crown molding. With home rental and buying prices high in the East Bay, Smith decided it was better to revamp the home she lived in than look for something new.

“We’re taking what we have and making it what we can,” Smith said.

HomeAdvisor’s Hunter authored a February study that found the average homeowner had spent nearly 60 percent more on home projects over the past 12 months than in the 12 months prior. It also found a 7 percent increase in total nationwide expenditures on home improvement because of homeowners tackling big-ticket projects like kitchen and bath remodels or even renovations of the whole home.

According to the HomeAdvisor study, homeowners reported spending an average of $5,157 on home projects in the past year, an increase of $1,869 over the previous year, and nearly two-thirds of homeowners said they will spend that much or more in the coming year.

While big-box retailers like Home Depot and Lowe’s — which have seen strong growth in their stocks this year — aren’t expanding in the Bay Area because of a lack of space, smaller players like San Jose-based Orchard Supply Hardware, which Lowe’s bought about three years ago after it filed for bankruptcy, have opened new Bay Area stores in the past year, said Jeff Badstubner, senior vice president and retail market lead at JLL.

Badstubner pointed at related markets, like home furnishings and decor, which often go hand in hand with renovations and have increased their presence in the Bay Area.

Discount retailer Home Goods, for example, now has about 17 stores in the Bay Area, with plans to open another in Mountain View in June and three more in other parts of California the same month, according to its website. Living Spaces, a furniture retailer, opened three stores in the Bay Area and is looking to expand, Badstubner said.

Even stores like Target, Marshall’s and Ross have expanded their home goods sections in recent years.

While plenty of people do buy home-improvement or decor products online, shoppers often feel the need to see and feel home-improvement goods in person, especially for big-ticket renovations, Badstubner added.

Walsh, the contractor, said the store experience is important to him, and he likes Lowe’s in particular because of the store’s organization and cleanliness, he said as he paired up wood floor samples next to different tiles to see what looked best.

Many challenges

There is no guarantee, of course, that the housing boom will continue. If home prices decline or interest rates increase, it could affect home-improvement spending and thus, home-improvement retail. At the same time, retailers of all kinds might be wary of opening too many stores — a problem that many say contributed to this year’s retail blues.

And while rising home prices have encouraged homeowners to reinvest in homes, they have also made it more difficult for many young people to buy homes or to have enough money left over for repairs or improvements.

“Despite these challenges, the remodeling industry should see numerous growth opportunities over the next decade,” said Chris Herbert, managing director of Harvard’s Joint Center for Housing Studies, in a report issued this year. “Strong demand for rental housing has opened up that segment to a new wave of capital investment, and the shortage of affordable housing in much of the country makes the stock of older homes an attractive option for buyers willing to in invest in upgrades.”

Hunter, the chief economist for HomeAdvisor, said that while the rate of homeprice appreciation will likely slow, he sees a potential for continued growth in homeimprovement spending “because people have still gained that equity and still have strong incomes.”