Home improvement industry stimulated by remodeling

May 03, 1992|By Jube Shiver Jr. | Jube Shiver Jr.,Los Angeles Times

After spending six years sharing a bathroom with his wife and two children, salesman John Brummelcamp is adding a second bath and two bedrooms to his two-bedroom Southern California home.

His monthly mortgage will rise by $300 as a result of the $50,000 equity loan he took out to finance the 800-square-foot addition. But that's only a third of the increase had he bought a bigger house.

"The dollars and cents pointed us in this direction," he said. "It really doesn't make financial sense to move."

Many other homeowners are reaching the same conclusion, setting the stage for home improvement to displace construction as the king of the housing industry in the next few years. Home improvement spending since 1987 has been growing faster than spending on new home construction, the U.S. Department of Commerce says.

Annual revenue at the nation's largest remodeler, Omaha-based Pacesetter Corp., climbed 7 percent last year to more than $100 million, and in January the company posted record sales in the 41 cities where it operates, President Harley D. Schrager said.

House remodeling typically does well during a recession compared with house sales. But recently, remodeling also has benefited from the drop in interest rates. While low rates have also spurred house sales, years of rising house prices have made remodeling more economical for many homeowners.

Aside from current economic issues, some experts say changing demographics portend a long-term boom in home remodeling. After spurting 11.9 percent in the 1980s, the U.S. population age 16 and over is expected to grow just 8.9 percent this decade. That slowdown could produce a 21 percent reduction in demand for new housing units in the United States by 1995, economist Leonard Mills of the Federal National Mortgage Association predicted.

Meanwhile, the U.S. population and housing stock are growing older, and that could spark an explosion in remodeling. The average U.S. home already is more than 25 years old, and elderly homeowners are less likely to trade up to a new home.

"As the population gets a little older, people tend to get more settled," Mr. Mills said.

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