One-on-One…with Kermit Baker
September 2nd, 2008

“Once we come out of this recession, we see a lot of growth of households in the coming decade.”

September-October 2008

By Jeffrey Steele

When Kermit Baker speaks, tile dealers, distributors, contractors and installers would do well to listen. As director of the Remodeling Futures Program for Harvard University’s Joint Center for Housing Studies in Cambridge, Mass., Baker aggressively pursues his mandate to track the leading indicators for remodeling activity.

In the process, he and his staff gain valuable insight into the direction in which the remodeling industry is headed, and share that insight with industry leaders, the press and the public at large on a quarterly basis. Baker graciously agreed to a recent interview with TileDealer about the work of the Remodeling Futures Program.

In this wide-ranging and candid One-on-One exchange, he discusses how the remodeling index evolved and what information is utilized in its formulation, what the most recent numbers say about the coming months, and what other demographic and design trends mean for the future of the remodeling industry.

TileDealer: Please give us a little of the history, both the Joint Center’s and your own.

Baker: I came back here in 1995 to run this remodeling program. I had been affiliated with the Joint Center back in the early 1980s while working on my doctorate. The Joint Center dates back to the late 1950s, when it was established through a large grant from the Ford Foundation just as urban issues were coming to the forefront.

It’s a policy center that began by looking at urban issues and subsequently narrowed its focus from urban issues to housing issues in the 1970s. We look at regional trends, housing finance, industry structure and composition issues, and mortgage markets and the home improvement market as well.

TileDealer: What factors go into the remodeling index?

Baker: When we started our remodeling program back in the mid 1990s, one of the big issues the industry faced was getting a good reading on the size and composition and trends of remodeling activity. The government collects some data, which was often late and not terribly accurate. We asked companies participating in the program—building product manufacturers, contractors—to provide their own data, believing if we had a sense where their companies were going, we’d have a sense of where the industry was going.

After a year, we started looking around at government data sources released on a more reliable and timely basis, and used that to get a sense of where the industry was headed. Our first remodeling indicator was released in 1998.

A couple of years ago, private companies in the industry involved in the Remodeling Futures Program asked for a sense of where the industry was headed. We went back and did more analysis, and expanded our indicator into a leading indicator, looking at events that typically precede remodeling in the business cycle.

These are things like sales of existing homes, mortgage interest rates for those who finance their remodeling projects, housing starts and remodeling contractor expectations of future trends and conditions. Those are the kinds of things we use when we develop our leading indicator.

TileDealer: When was it first released?

Baker: We came out with our first indicator of current market conditions in 1998 and switched to our leading indicator in 2005.

TileDealer: What can readers of TileDealer learn from the index in making their own corporate plans?

Baker: The purpose of our leading indicator is to give a sense of future directions in the industry, and what kind of growth we are likely to see over the next two to three quarters—as well as a sense of when we will see turning points in the industry.

Our leading indicator is pointing to slower growth through the first quarter of 2009, and we’re going to monitor those trends pretty closely to see where we will see some kind of a turning point in industry activity.

TileDealer: How accurate have the numbers been on an historical basis?

Baker: They’ve been quite accurate. We have a correlation between our leading indicator and remodeling spending of .7 to .75. If it went as high as 1.0 that would mean you would have a perfect relationship between the two.

But one of our goals is to provide a steady measure of trends in the industry. We tried to develop a leading indicator that smoothes out the bumps you get in government data, and shows the true underlying trends of industry activity.

TileDealer: Is there a way tile dealers and distributors can leverage the index to grow business?

Baker: By getting a sense of where trends are headed, they can, for example, scale back inventories and other expenses when the market is headed down, and scale up spending when indicators point to coming growth.

TileDealer: Are there any other numbers that are important to follow as well, numbers that may or may not be part of the Leading Indicator for Remodeling Activity (LIRA?)

Baker: I would say any industry indicator we’ve identified related to remodeling we have used in computing our leading indicators. So I can’t really think of any others I would encourage folks to consider.

TileDealer: How does LIRA relate to other economic figures?

Baker: It’s akin to other leading indicators. The purpose of a leading indicator is to identify those economic activities that precede the activity you’re focused upon. For example, the government puts out something called the index of leading indicators, a compilation of interest rates, housing permits, and the money supply in our economy. And it’s intended to provide a sense of future direction for our broader economy. Our indicator identifies those activities that tend to precede remodeling activity, and we integrate those into a composite measure of where the industry is headed.

TileDealer: Can you break out the most recent LIRA—July 17—for readers?

Baker: It’s pretty self-evident. It shows the market is weakening and is projected to continue weakening for the next three quarters. There are no signs of the industry turning around during those three quarters.

TileDealer: How can readers continue to follow these numbers going forward?

Baker: Again, visit our home page. Every press release will indicate the date of the upcoming release so readers can anticipate it. It will be available on our website on a quarterly basis. [Editor’s Note: Go to and follow the link to the leading indicator.]

TileDealer: The Joint Center looks at a lot of trends beyond remodeling. What design and demographic trends do you see that will impact the tile industry? How can our readers leverage these trends?

Baker: Demographic trends are something we follow at the Joint Center. Once we come out of this recession, we see a lot of growth of households in the coming decade, based on demographic projections we develop internally that examine population trends and how they lead to household formation. About two-thirds of the increase in households over the next decade will be minority and immigrant households, so the composition of households coming into the market will look a lot different than it has in recent decades.

As far as design goes, I do some work with the American Institute of Architects, which produces a quarterly survey of emerging home design trends. One big trend is greater accessibility in the home. But there are others that are going on. Homes appear to be getting smaller for the first time since World War II. Homes got overly formulaic, with rigid floor plans governing how homes were designed. People found once they began living in those homes, that they weren’t using a lot of the space. Now households are looking for space customized to their own lifestyles, and in doing so finding that they just don’t need the gross square footage they once had.

There’s a lot of interest in outdoor living, in decks and patios and the outdoor room. The concept of the outdoor room started with cooking facilities and has now moved to outdoor living rooms. Virtually anything you see inside the house you’re now seeing outside the house.

There’s also an emerging trend toward more informal space and more flexible space. This is sort of a reaction to the formal dining room and formal living room, which were very contained spaces. Now households are looking for more flexibility in how they use their homes.

TileDealer: What’s ahead for the Joint Center for Housing Studies?

Baker: We’re just launching a big round of research on remodeling. We’re trying to work with industry and government agencies to increase the amount of information we have to track the evolution of this industry.


Kermit Baker is Director of the Futures Remodeling Program

Joint Center for Housing Studies, Harvard University, Cambridge, MA.

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