Echoing the unrest in the housing market and a dive in consumer confidence, overall remodeling activity remained flat in Q3 2011, according to the latest data from the Hanley Wood Residential Remodeling Index (RRI).

Nationally, the level of remodeling and replacement project activity declined slightly to 79.9 from a second quarter level of 80.15, a drop that may not be statistically relevant but likely noticeable to any remodeler waiting for his phone to ring. “We’re experiencing a continuation of the funk that’s happened nationally for the economy,” says Jonathan Smoke, Hanley Wood’s executive director of research. “We’ve in essence reached the bottom but we’re not recovering very quickly.” He adds that according to the RRI, average remodelers will have a 2012 very similar to their 2011, but the best remodelers should see a slightly improved 2012.

An Unbuckable Trend?

Originally the RRI had forecast that Q3 2011 would be the bottom, but as time passed that proved not to be the case with a slight drop predicted for Q4 2011. “The good news is we weren’t far off, but looks like the fourth quarter will be the bottom and not really different from the third quarter,” Smoke explains. “What is substantially different is that rather than expecting some decent growth throughout next year, we won’t see that until at least the second half. These numbers are almost identical to the Harvard study that just came out.” Smoke is referring to the Leading Indicator of Remodeling Activity released quarterly by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University, which was released last week.

The fact that remodeling activity is at a nadir right now is entirely logical and would be strange if it was seeing an uptick considering current economic rumblings. “Remodeling is not bucking the trend and it makes intuitive sense,” Smoke says, adding that the people who are likely to undergo remodeling projects are not necessarily those suffering the most through this downturn.

However, there is no urgency for them to undertake a new renovation or remodeling project right now as they wait and see if they need to hold onto their money a little longer, Smoke says. “You complicate that with how ridiculously difficult it is to get financing and how a lot of people continue to lose money in the stock market this year, and it shouldn’t come as a surprise that we can’t buck the trend,” he says. “The reality is that remodeling is tightly linked with economic conditions and consumer confidence.”

But on the Bright Side...

Fortunately, there is something of a silver lining around this darkened cloud that has rained on remodeling jobs coast to coast because there are a number of bright spots in mid-sized and smaller markets, according to Smoke. “[The bleak numbers] are true on a national level,” he says, “but it’s hiding the fact that locally there’s a real divergence because there are parts of the country doing quite well and have strong forecasts for improvement in 2012. Our revised expectations are essentially flat but there’s some real differences happening across the country,” he says. “This is all the more reason for remodelers, manufacturers, and replacement companies to be as targeted as possible to know what areas have the strongest activity.”

Bend, Ore. and Ocala, Fla., two moderately sized markets in very different parts of the country are poised to see a 9% jump in remodeling activity from 2011 to 2012. Lansing, Mich. and Gulfport/Biloxi, Miss., are both predicted to have a 7% improvement in remodeling jobs and areas as diverse as Yuma, Ariz., Minneapolis, and Pine Bluff, Ark., could see a 6% increase in remodeling jobs from this year to next, according to the RRI.

In terms of the markets with the highest remodeling activity levels, Houston and Minneapolis-St. Paul were at the top of the list with RRIs of 97.6 and 95.4, respectively. While it was no surprise that those two cities had the most activity, what was surprising was Atlanta landing in the top 20 for the first time with an RRI of 89.7. “Seeing Atlanta make this list of markets with above average activity growth is a good sign and an indication that things are starting to improve,” he says, adding that the outlook for the long-term looks positive.

According to Smoke, the fundamentals for the long term look good and 2012 will have the economic growth everyone was hoping would take place next year. “We’re running some really rough numbers for years past that point to high single-digit maybe even double-digit growth,” he says. “And that’s consistent with all the long-term trends we’ve been talking about in terms of the aging of the housing stock, the eventual stabilization and rebound in home prices, and boomers entering the age when they need to be making changes to their homes as they reach retirement.”

“The story hasn’t changed,” he adds, “it’s just the distance between us and recovery has grown a little bit.”

About the Residential Remodeling Index: The RRI is a quarterly measure of the level of remodeling activity in 366 metropolitan statistical areas (MSA) in the U.S., with the national composite reflecting the national level of activity. “Activity” includes home improvement and replacement projects, but does not include maintenance or projects of less than $500. The seasonally adjusted index shows the relative level of activity in the geography specified (MSA or national composite) compared to 2007 (the baseline year). A number above 100 indicates a level of remodeling activity higher than the level of activity at the beginning of 2007, which was the peak of remodeling activity in the prior decade.

The index is produced through a statistical model that leverages detailed data on remodeling activity, including household level remodeling permits, and consumer reported remodeling and replacement projects. Quarterly historical results for the national composite and for each of the 366 Metropolitan Statistical Areas in the U.S. are available back to 2004.