Remodeling Index Positive For Home Improvement Stocks

Elmwood Data's picture


The macro environment for home improvement stocks continues to be favorable.   Credit standards have eased somewhat over the past few months and with the Federal Reserves new “operation twist” program, it has driven down interest rates even further.  This has created a much more favorable backdrop for home owners wishing to refinance.   It appears for owners who are refinancing, some of the dollars that are being saved in a such a deal are being reinvested in their homes.  Home improvement retailers in recent quarters have all told the same story, that people are shying away from big projects and instead are spending money on smaller ticket items to improve their home.   
To monitor the health of the home improvement area we have found that the BuildFax Remodeling Index (BFRI) serves as an excellent guide.   This is an index that is based on residential construction permits filed with local building departments across the country.   The index tracks the number of properties permitted each month across a set of building departments they have found to be representative.   The only caveat here is that this index tends to be seasonal, as remodeling activity falls off during the winter months.  In the first chart, we compare a combination of Home Depot (HD), Lowes (LOW), and Valspar (VAL) against the BFRI without any seasonal adjustment.  The falloff during winter months is quite visible.  
When we adjust this index on a seasonally adjusted basis, it really speaks volumes.   There is a very positive correlation between these stocks and the activity of the index.  By our calculation, this index typically leads stock price movement as well.   This next chart shows the same combination of Home Depot, Lowes, and Valspar against the seasonally adjusted version of the BFRI.
The latest November BFRI results showed a 33% year over year increase, which was the 25th consecutive year over year month of growth.  Though the last reading also did show a slight decline from it’s previous high, the index nevertheless remains at a very high level.  The BFRI permit data suggests a continued healthy environment for home improvement stocks going forward, and as long as interest rates remain depressed, this area remains attractive.   

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kall's picture

I think we have important clues already that people are more willing to spend money on household investments and this can only be a great thing, it's a sign of economic revival. I also read some facts about it on this McCaleb construction resource. Things are getting to stay in shape.

Lucius Cornelius Sulla's picture

Looked at a home in an upscale neighborhood that might have gone for $900k at the peak with an asking price of $500k.  The owners walked away from the mortgage and took the appliances,etc... as they were foreclosed on.  The place is a total mess.  10 years of deferred maintenance.  Roof, flooring, deck...basically needs to be gutted and redone.  I think the bank will be lucky to get what the dirt it sits on is worth (~$200k) just to lure somebody with lots of time and patience to do the work.  Anybody who pays more than that is a fool, IMHO.  I'm guessing there are a lot of homes like this out there that will help the home improvement stores once prices get low enough.

battle axe's picture

Wait a minute, there was a housing crisis?

gookempucky's picture

Funny stuff sick---------------- ya folks are spending big bucks at the big box remodel suppliers--NOT- local Lowes is kinda spooky early mornings--no customers--myself the biggest ticket item I have purchased are 5 slip joints and pvc glue. All other stuff I buy is from my locally owned hardware store.

Many folks can get a better deal  for materials/tools/fasteners that are left over from the Home building pigs buffet on craigslist..

Bottom line is YOU CAN'T FLUSH THIS construction = NO RECOVERY

sickray's picture

good article. property has and always will be a solid investment, why wouldn't people put more money into their homes

Eugend66's picture

My first 'poor' rate for an article on ZH.

Coldfire's picture

Keep flogging the dead horse of housing. It should revive any year now...

blindfaith's picture



I love the smell of  'seasonally adjusted' numbers in the morning.

This is the kind of crap I would have seen on CNBC back when I watched it some 10 years ago.