Spending for home improvements and repairs is expected to peak during 2022, according to the Leading Indicator of Remodeling Activity (LIRA). The LIRA, released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University (JCHS), projects double-digit gains in annual homeowner renovation and maintenance expenditure will top out in the third quarter of 2022 before beginning a deceleration towards “more sustainable rates of growth.”

“Strong increases in home sales activity, household incomes, and home equity levels are supporting a faster expansion of the home remodeling market over the coming year,” Carlos Martín, project director of the Remodeling Future Program at the JCHS, said in a prepared statement. “As owners continue to navigate the ups and downs of the pandemic’s trajectory, the docs on home improvements for changing wants and needs remain in sharp relief.”

While annual owner improvement and repair spending could reach $430 billion by the second half of 2022, several headwinds may temper growth expectations for the year. The rising costs of labor and construction materials, difficulty retaining contractors, and rising interest rates could discourage owners from undertaking remodeling projects, according to the JCHS.

Estimated YOY growth in remodeling spending during the fourth quarter of 2021 (9.4%) was 20 basis points higher than LIRA’s projection from the third quarter (9.2%).

The previous two LIRA released reported spending projections using a smoothing technique to adjust for “immense growth rate volatility” in several model inputs, which was the result of year-over-year comparisons to pandemic-induced lows, according to the JCHS. As the shocks recede into the past and inputs begin to stabilize, the Remodeling Futures program is reverting to its standard methods for projecting homeowner improvement and repair spending in its fourth quarter report. As such, the fourth quarter growth rate projections are higher than reported for the previous two quarters.

The LIRA, 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. The indicator is intended to help identify future turning points in the business cycle of the home improvement and repair industry. The indicator is benchmarked to national spending estimates from the U.S. Department of Housing and Urban Development’s American Housing Survey (AHS) and was re-benchmarked in April 2016 to a broader market measure based on the AHS. The next quarterly LIRA report will be released in mid-April 2022.