Slower growth in home remodeling expected

Spending on home remodeling and repair will continue to grow in 2019 but at a slowing pace, according to a recent report by the Joint Center for Housing Studies at Harvard University.

The center's Remodeling Futures Program updated its Leading Indicator of Remodeling Activity figures, which concluded that American homeowners spent $331.1 billion sprucing up their homes in the third quarter of 2018. The report projects that spending will increase to $337.8 billion in the fourth quarter of the year, a year-over-year increase of 7.7 percent.

The LIRA projections suggest that spending totals will continue through 2019, but that year-over-year growth will start to decrease. The report expects homeowner spending on remodeling and repair to grow 7.2 percent to $340 billion in the first quarter of the year and rise to $353.1 billion in the third quarter of the year – an annual increase of 6.6 percent.

"Rising mortgage interest rates and flat home sales activity around much of the country are expected to pinch otherwise very strong growth in homeowner remodeling spending moving forward," said Chris Herbert, managing director of the Joint Center for Housing Studies. "Low for-sale inventories are presenting a headwind because home sales tend to spur investments in remodeling and repair both before a sale and in the years following."

"Even so, many other remodeling marketing indicators including home prices, permit activity, and retail sales of building materials continue to strengthen and will support above-average gains in spending next year," said Abbe Will, associate project director in the Remodeling Futures Program.

LIRA offers a short-term outlook for home improvement spending, designed to forecast expenditures in the current quarter and three following quarters. Projections are based on a variety of factors, including databases on home sales, home prices, remodeling permits, and retail sales of building products.

Spending on remodeling and repairs has increased each quarter since the first quarter of 2010, and overall spending has grown annually since the fourth quarter of 2010. The greatest boom in home improvement spending in LIRA history occurred in the fourth quarter of 2004, when expenditures rose 25.9 percent to $219.9 billion. The greatest year-over-year decrease occurred in the fourth quarter of 2009, when spending dropped 10.6 percent to $222.4 billion.

In another recent report, the National Association of Home Builders said its Remodeling Market Index for the third quarter of 2018 stood at 58. This index, ranging from zero to 100, is based on a quarterly survey to remodeler members of the association. A figure of 50 indicates that equal numbers of respondents are reporting higher and lower remodeling activity than the previous quarter.

The index has stayed above 50 since the second quarter of 2013, ranging from a low of 53 to a high of 60. The index was unchanged from the second quarter of 2018 but up from 57 in the third quarter of 2017.

"Remodelers across the country are seeing homeowner demand remain strong through the midpoint of the year," said Joanne Theunissen, chair of NAHB Remodelers. "Both positive home price growth—albeit at a slightly slower rate—and good consumer confidence are supporting the steady remodeling market."

"The stability of the RMI reflects offsetting trends in the remodeling market," said Robert Dietz, chief economist at NAHB. "A sound economy with low unemployment and easing lumber prices are being counterbalanced by rising interest rates and the ongoing labor shortage."

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