Remodeling, Home Improvement Forecasts Take Downward Turn

Growth in residential remodeling, which until recently had experienced steady if unspectacular growth, is showing signs of a longer-term slowdown, according to several reports.

The Joint Center for Housing Studies of Harvard University, Cambridge, Mass., said yesterday its Leading Indicator of Remodeling Activity shows residential remodeling spending is expected to “slow considerably” by mid-2020. The LIRA projects annual gains in homeowner expenditures for improvements and repairs will shrink from 6.3 percent in the current quarter to just 0.4 percent by second quarter 2020.

“Declining home sales and homebuilding activity, coupled with slower gains in permitting for improvement projects, will put the brakes on remodeling growth over the coming year,” said Chris Herbert, Managing Director of the Joint Center for Housing Studies. “However, if falling mortgage interest rates continue to incentivize home sales, refinancing, and ultimately remodeling activity, the slowdown may soften some.”

The LIRA (https://www.jchs.harvard.edu/benchmark-update-lowers-remodeling-market-size-projections) projects national spending for home remodeling and repairs will grow to $331 billion in 2019, an increase of 5.5 percent from last year. But compared to last quarter’s release, the updated LIRA now shows lower market size estimates and projections for remodeling and repair activity in 2018, 2019 and the first half of 2020.

According to its tabulations through the American Housing Survey, the Joint Center estimates spending in 2016 and 2017 was not nearly as robust as the LIRA model predicted, growing by only 5.4 percent from $278 billion in 2015 to $292 billion in 2017 compared to LIRA estimated growth of 11.9 percent over this period.

Previously, the LIRA estimated a homeowner improvement and repair market size of $336 billion in 2018 and projected that spending would grow to $353 billion in 2019. Abbe Will, Associate Project Director in the Remodeling Futures Program with the Center, noted with replacement of AHS-based benchmark data for previously modeled estimates, the LIRA model indicates remodeling activity reached $313 billion in 2018 and projects spending will reach $331 billion this year. The implication of slower growth in actual remodeling and repair spending over 2016 and 2017 is a reduction in market size projections for 2019 of 6.3 percent or $22 billion.

“With the release of new benchmark data from the American Housing Survey, we’ve also lowered our projection for market size about 6 percent to $323 billion,” Will said. “Spending in 2016 and 2017 was not nearly as robust as expected, growing only 5.4 percent over these two years compared to 11.9 percent as estimated.”

The National Association of Home Builders’ Remodeling Market Index has seen a steady drop since Q4 17; that quarter, the Index stood at a healthy 60. Since then, the Index has fallen, with the last reported quarter, 1Q 2019, coming in at 53, barely above the index median where 50 or higher indicates increased activity.

Earlier this week, BuildFax, Austin, Texas, reported while Americans are taking on fewer remodeling projects, those they do take on cost more.

The company’s June Housing Health Report said construction spend climbed despite the U.S. housing slowdown. States with the highest increases in construction spend include Colorado, Washington and Florida, likely because of those states’ relatively affordable housing markets.

“Maintenance and remodel volumes on the existing housing stock are declining, while spend on both fronts experienced an increase, likely a result of tightening construction labor and materials markets,” the report said. “Much of this activity was concentrated in states that are experiencing an influx of residents.”

“So far, 2019 has revealed a dichotomy in the housing market-new and existing construction activity is declining steadily, while the spend on these projects is increasing consistently,” said Buildfax CEO Holly Tachovsky. “We’re seeing a distinct push and pull in the housing market. Affordability challenges are pushing homeowners out of high-density states like California and New York. Meanwhile, affordable markets are still pulling in new residents who want to buy a home. Amidst a slowdown, states with a new-found population growth present a particularly interesting subsection to monitor.”