Concerns of a possible pandemic-induced downturn on the remodeling market has dissipated, according to the Leading Indicator of Remodeling Activity (LIRA) released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University (JCHS). Instead, the third quarter LIRA projects moderate gains in homeowner spending for residential improvements and repairs through much of 2021.
For its first two reports in 2020, the Remodeling Futures program provided a downside range for its remodeling outlook, incorporating retail sales of building materials, home prices and GDP. In the second quarter, the downside range projected annual spending would increase moderately from the third quarter of 2020 through the first quarter of 2021 before declining by the middle of next year. However, with greater clarity about the coronavirus (COVID-19) pandemic’s impact on the overall economy and the general resilience of housing markets, the Remodeling Futures Program is no longer providing the downside range for its home remodeling outlook.
The LIRA’s standard methodology, which does not include forecasted trends, projects annual growth in renovation and repair spending of 4.1% by the first quarter of 2021, with gains softening to 1.7% by the third quarter of next year. According to Abbe Will, associate project director in the Remodeling Futures Program at the JCHS, annual expenditures for residential renovation and repair are expected to rise from approximately $332 billion currently to $337 billion by the second half of 2021. Will said strengthening of home prices and sales activity could provide further boosts to remodeling in 2021 and guard against soft growth in the latter half of the year.
“The remodeling market is bouncing back from the initial shocks caused by the pandemic, as homeowners continue to spend significant time in their home and are adapting it for work, school, and leisure,” Chris Herbert, managing director of the JCHS, said in a news release. “The surge in DIY and small project activity is lifting the remodeling market, but it remains to be seen if the strong sales market this summer translates into larger improvements that would drive even stronger growth in the coming quarters.”
In a recent report, the JCHS forecast the DIY surge experienced during the pandemic is unlikely to continue long-term due to rising household incomes, lower rates of mobility, more complicated materials and products, and a general declining interest and exposure to manual labor. Additionally, an aging overall owner population is likely to contribute to lower DIY activity in the near-term future.
LIRA provides a short-term outlook of the national home improvement and repair spending to owner-occupied homes. The indicator, which is measured as an annual rate-of-change of its components, is designed to project the annual rate of change in spending for the current quarter and the following four quarters. LIRA is intended to help identify future turning points in the business cycle of the home improvement and repair industry. The indicator was re-benchmarked in April 2016 to a broader market measure based on the American Housing Survey. The next quarterly report will be released in mid-January 2021.
