Takeaway: The remodeling market lacks momentum for large spending upgrades.
Here are my views on the home remodeling market and trends. No question, still very weak. Home remodeling activity in the first quarter of 2011 was less than 50% of where it was in the first quarter of 2008, right before the sharp downturn in the housing market.
While the remodeling market tends to move closely with the homebuilding market, remodeling activity does tend to be a bit more resilient than new construction. However, the Great Recession we experienced in recent years took a sizable toll on home improvement spending.
For homeowners still on the fence for home improvement projects, the National Association of the Remodeling Industry (NARI) provides some guidelines to get the most out of remodels.
Kitchen remodeling may reduce energy consumption with green remodel redesigns, according to NARI. You can also install an efficient hot water system and a heat exchange system in each fireplace to retain heat. Of course, solar panels are another way to reduce energy costs, but the roof pitch has to conform to take advantage of photovoltaic glass panels. Another home improvement for energy savings would be increased insulation and sealing.
While there are no pure-play ETF securities for home remodeling, here are two ETFs that provide an indirect way to invest in the home remodeling market.
The SPDR S&P Homebuilders ETF (XHB 17.64 Marketweight) has Home Depot (HD 36 ***) as one of its top 10 holdings, although only 9% of its 35 total holdings are classified in the home improvement retail sub-industry.
The iShares Dow Jones US Home Construction Index Fund (ITB 12.41 Underweight) has 28 holdings consisting mostly of homebuilder stocks. This contrasts with the SPDR S&P Homebuilders ETF, which has 35 holdings made up of a more diversified basket of building products, homebuilder, home furnishing and household appliance stocks.
Negative Implications: SPDR S&P Homebuilders ETF (XHB 17.64 Marketweight), iShares Dow Jones US Home Construction Index Fund (ITB 12.41 Underweight)