The industry gained a forecasting tool with the April introduction of the Leading Indicator for Remodeling Activity (LIRA).
Developed and published by the Joint Center for Housing Studies at Harvard University (JCHS), the LIRA projects four-quarter rates of change three quarters in advance. For the first quarter of 2007, the LIRA projects growth of 3.6% for the remodeling industry this year (see chart).
The LIRA will replace the quarterly release of JCHS' Remodeling Activity Indicator (RAI), which measured current industry activity. That information will be part of the LIRA — though calculated using new methodology — but the LIRA looks to the future. “We wanted to develop something we thought would be more useful,” says JCHS research analyst Amal Bendimerad, noting that while people appreciated that the RAI told them where things stood, they were more interested in where things were going.
While several metrics attempt to forecast the industry's future, REMODELING knows of none that do what the LIRA does. The Remodeling Market Index, published by the National Association of Home Builders and often reported upon in this space, is a more anecdotal measure, while others — such as those published by Morgan Stanley and Global Insights — deal specifically with retail sales and don't include pro labor in their predictions.
Nine statistical variables (including the future expectations portion of the RMI) from various sources comprise the LIRA. They were selected from a larger pool of variables, based on their historical ability to accurately predict future remodeling activity. Not all of the variables count equally toward the LIRA; each is weighted based on strength of historical correlation, relative to the other variables.
Due to differing lead times with the variables, as well as revisions to those data, historical values and future projections of the LIRA will be regularly revised.