The improving housing market and record low interest rates could be creating a perfect storm that leads to gains in home improvement activity for the rest of the year and well into 2013, according to the Leading Indicator of Remodeling Activity (LIRA) released today by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University.
If the LIRA forecast is accurate, a very robust remodeling season is brewing, with annual homeowner spending on home improvements expected to reach double-digit gains in the first half of 2013. The LIRA predicts a jump to more than $130 billion in home improvement spending by Q2 2013, a significant increase from Q2 2012’s $115 billion. “These numbers are absolutely smoking,” says Kermit Baker, director of the Remodeling Futures Program at JCHS. “The number was so good that we gave pause a little bit just to look at what’s going on.”
The record housing starts numbers released yesterday show a 15% jump in housing starts, the highest in four years. This upturn, combined with the low interest rates and new home prices edging upward, all play a role in calculating the LIRA. “The starts numbers that came out yesterday certainly are showing some real strength on the residential side of the market,” Baker says. “House prices are starting to move back up again, and consumer confidence is on the rise. So hopefully the stars are aligning and we’re going to get this surge that LIRA is projecting.”
There’s Work Out There to Be Had
But what does this mean for remodelers? According to Baker, there’s going to be more work, if you can find it. “We’re starting to see an upturn in sales, and that creates a lot of opportunities [for remodelers],” he says. “There’s starting to be much more confidence that prices are going to head back up, so I think people that have been deferring those [home improvement] jobs may start getting back into the market again. It’s a good time for remodelers to start re-launching their marketing campaigns.”
The strongest factor that drives the LIRA is home sales, but another indicator the LIRA uses — interest rates —Baker is less confident about. “Historically, low financing costs generate an upturn in home improvement activity,” he says, adding that in this cycle that was not necessarily the case. “While the rates are great and are getting better, people are having problems in securing those loans for home improvement, so it’s not having the effect it has had [on the LIRA] in the past.”
Baker adds that gains in home improvement activity generally trail housing starts by six to nine months. Since new-home construction began to gain steam earlier in the year, the uptick in the number of remodeling jobs is right on track. “There’s likely to be more work out there,” he says, “so remodelers should be more aggressive in pursuing it.” —Mark A. Newman, senior editor,REMODELING.
The Leading Indicator of Remodeling Activity (LIRA) is designed to estimate national homeowner spending on improvements for the current quarter and subsequent three quarters. The indicator, measured as an annual rate-of-change of its components, provides a short-term outlook of homeowner remodeling activity and is intended to help identify future turning points in the business cycle of the home improvement industry. The development of the LIRA is detailed in “Developing a Leading Indicator for the Remodeling Industry” (JCHS Research Note N07-1). In July 2008, the LIRA was re-benchmarked due to changes in the underlying reference series. The LIRA is released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University in the third week after each quarter’s closing. The next LIRA release date is Jan. 17, 2013.
The Remodeling Futures Program, initiated by the Joint Center for Housing Studies in 1995, is a comprehensive study of the factors influencing the growth and changing characteristics of housing renovation and repair activity in the U.S. The program seeks to produce a better understanding of the home improvement industry and its relationship to the broader residential construction industry.
The Harvard Joint Center for Housing Studies advances understanding of housing issues and informs policy. Through its research, education, and public outreach programs, the Joint Center helps leaders in government, business, and the civic sectors make decisions that effectively address the needs of cities and communities. Through graduate and executive courses, as well as fellowships and internship opportunities, the Joint Center also trains and inspires the next generation of housing leaders.
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