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That is what we have seen the last few years – that home prices are rising faster than income growth. So substantial remodels like additions or bathrooms and kitchens, which are consistently the most common types of remodeling projects, are driven by the amount of wealth existing homeowners have. And that is what we are seeing." Positive sentiment among kitchen and bath professionals (see sidebar, Page 70) underlines the point, says Dietz. He points to the NAHB's Remodeling Market Index, which stands at 57. Any reading above 50 in this survey of professionals is seen as positive for future activity. Tomalak's forecast breaks activity into large and small projects. That break is $5,000. For 2018, his company sees big project expansion in the double digits. "Our growth for owner, big-project spending, including labor, is for 10.2% in 2018. That is a great number. That's about a 3% growth in job volume and about a 7.5% increase in average spend per project. So there are no complaints there," says Tomalak. "It's just a great year." He cites rising home prices and continued equity growth as the primary driver, along with increasing use of home equi- ty lines of credit to make major improvements. AN INFLECTION AND A SHIFT One year from now the discussion may be less about major improvements like kitchens and baths, and more about smaller projects. The reason, says Tomalak, is evident in very accurate historical numbers found in the American Housing Survey. It shows that whenever incomes rise (as they are now) and there's a slowing in the rise of home pric- es and equity (which is forecasted for 2018), there is a shift from major renovations to smaller project sizes. This will not affect the bullish big-project outlook for this year, but will show itself by 2019. "We are pivoting now coming into 2018," notes Tomalak. "We see the makings of slowing home price appreciation combined with rising real wage growth. Usually when we have seen that in the past – 20 years of housing data – is when we see real wage growth with home price appreciation. That is the fundamental pivot point for more frequent small projects. People might tackle a kitchen update, a bathroom update, put new windows and doors in their homes, but they are not going to spend a lot. They might elect to do a punch list of refreshes around the home. But when you have slowing home price appreciation, we just don't see the pocketbooks open to the same extent." The other shift underway has been a long time coming – millennials are finally entering embracing home ownership. NAHB and NAR both cited the presence of younger, first-time home buyers having an impact on new and existing housing sales in 2018. Until now, millennials have been unwilling or unable to have a meaningful impact on the market, says the NAR's Jessica Lautz. Affordability has been a real problem as house prices have risen in the recent past while real wages were growing slowly, she says. Many local markets are still highly unaffordable for younger buyers. Millennials now number more than boomers. And with boomers still strong but incrementally slowing their spending as they age, the homeownership preferences of millennials is under a microscope. Finally, there is some hard evidence, agree the experts, that millennials behave like other genera- tions – when they buy, they also are inclined to make im- provements. Tomalak says the new data shows that millenni- als are split into two camps – they either buy new houses, or they buy very old houses. "Demographically, we are on the cusp of these younger households just beginning to form. They are buying starter Source: John Burns Real Estate Consulting, LLC; FEMA (Data: Nov-17, updated quarterly) While rental owners are slowing their rate of improvements, owners are ramping up in a big way. Rising home equity is fueling the drive upward. Owner remodeling will grow 32.4% by 2020, driven by large and small project gains in 2017 and 2018. Note: 2015 is the most recent annual data (released 9/29/2016). HELOCs are not included. Sources: Home Mortgage Disclosure Act; John Burns Real Estate Consulting, LLC (Data: 2016, updated annually) Home improvement loan sizes are moving up briskly. This is a clear indication of major remodeling activity, including kitchens and baths. The average home improvement loan was $105,000 in 2015, up 31% from $80,000 in 2014. " The primary characteristic of housing markets right now is a lack of inventory." ROBERT DIETZ , chief economist, National Association of Home Builders " Housing affordability remains a barrier to entry for millennials. " JESSICA LAUTZ , managing director Survey Research and Communication, National Association of Realtors Burns Residential Repair and Remodel Spending: Owner-Occupied Remodels ■ Owner Big Projects ■ Owner Small Projects ■ Owner Disaster Repairs Total YOY % Change Average Size of Home Improvement Loan $300 $250 $200 $150 $100 $50 $0 Billions $USD 30% 20% 10% 0% -10% -20% % Growth Year-over-year 2014 increase from 18% in small-project maintenance spending, driven by deferred repair projects from prior years. '07 '08 '09 '10 '11 '12 '13 '14 '15 '16E '17P '18P '19P '20P '07 '06 '05 '04 '03 '02 '01 '00 '99 $23K $26K $30K $36K $40K $76K $94K $89K $83K $70K $83K $76K $78K $87K $84K $80K $105K $127K $130K $120K $110K $100K $90K $80K $70K $60K $50K $40K $30K $20K $10K $0K '08 '09 '10 '11 '12 '13 '14 '15 '16 January 2018 • KitchenBathDesign.com 69