Remodeling sector yielding healthy scrap flows

The Residential Remodeling Index (RRI) compiled by Metrostudy, a business unit of business information company Hanley Wood, climbed to what Metrostudy calls a new all-time high of 115.7 during the third quarter of 2018.

The 115.7 index figure represents a 5.2 percent increase from the index figure one year earlier, and is up 1.1 percent from the second quarter of 2018. The RRI has now experienced 26 consecutive quarters of year-over-year gains since remodeling activity hit a recent bottoming out in 2011.

Remodeling activity can generate scrap metal, particularly nonferrous wiring, pipe and plumbing fixtures, as well as mixed construction and demolition (C&D) materials in that recycling sector.

Metrostudy says the RRI is projected to continue increasing over the next three years, but annual growth rates are expected to moderate to an average of 2.9 percent in 2019 and 2.3 percent in 2020, before firming again in 2021. Moderating growth over the forecast will be mostly correlated with a plateau in employment growth, decreasing home affordability and declining home sales.

“Remodeling continues to be fueled by a hot jobs market,” says Mark Boud, chief economist at Metrostudy. “October job gains exceeded forecasts and the unemployment rate held at a 48-year low. And more significantly in October, American workers saw the biggest gain in average hourly earnings since 2009.”

As in some other sectors of the economy, that same low unemployment figure could lead to a ceiling on the good news. “While the economy is keeping remodelers extremely busy, [the] cost of labor and materials is on the rise due to the shortage of construction workers and the effects of tariffs,” says Boud. He adds, “Existing home sales are slowing as mortgage rates rise, a trend that reduces the number of remodeling projects done before and after a sale. On the upside, as rates increase, remodeling will benefit from the offset of more people choosing to stay in their current homes and make improvements there. We remain net positive on the industry’s outlook and expect the market to continue growing over the next several years.”

Metrostudy describes the RRI as a quarterly measure of the level of remodeling activity in 381 metropolitan statistical areas (MSAs) in the United States that is produced using data on remodeling activity, including household level remodeling permits and consumer-reported remodeling and replacement projects.