The Leading Indicator of Remodeling Activity (LIRA) forecasts strong growth in the remodeling market through the end of 2021 and into 2022. The LIRA, released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University (JCHS), projects a pace of high-single digit gains in annual home renovation and repair spending in 2021 and 2022, with 9.0% growth in spending by the fourth quarter of 2022. The report forecasts year-over-year (YOY) gains in annual improvement and repair spending of 12.3% by the third quarter of 2022.

The third quarter report reflects the continued positive outlook for the future of the remodeling industry. After uncertainty about how the industry would be impacted in the early months of the coronavirus (COVID-19) pandemic and negative forecasts in the first two quarters of 2020, greater clarity has led to more positive forecasts for the remodeling industry since the third quarter of 2020.

While estimated YOY growth in remodeling spending during the third quarter of 2021 (7.6%) fell short of LIRA’s projection from the second quarter (8.5%), projections for YOY growth through the first two quarters of 2022 are higher than forecasts from the second quarter LIRA report.

“Residential remodeling continues to benefit from a strong housing market with elevated home construction and sales activity and immense house price appreciation in markets across the country,” Carlos Martin, project director of the Remodeling Futures Program at the JHCS said in a prepared statement. “The rapid expansion of owners’ equity is likely to fuel demand for more and larger remodeling projects into next year.”

While several headwinds, such as the rising costs of labor and building materials and increasing interest rates, could taper expected growth in remodeling spending, Remodeling Futures Program associate project director Abbe Will said annual improvement and repair expenditures by homeowners could reach $400 billion by the third quarter of 2022.

Due to the unprecedented changes to the U.S. economy brought on by the COVID-19 pandemic, many economic indicators are showing extreme percent changes from pandemic-induced lows. To reduce enormous growth rate volatility generated by YOY comparisons and potentially inflated expectations, the JCHS said projects for the second and third quarters of 2022 utilize smoothed data from residential remodeling permits, single-family housing starts, and existing single-family home sales. Using unsmoothed inputs for those three indicators likely would have projected annual growth rates roughly two-third larger than reported, according to the JCHS.

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-January 2022.