Joint Center for Housing Studies of Harvard University

The remodeling market is projected to experience continued growth in 2021, with annual gains in spending for improvements and repairs in owner-occupied homes expected to be modestly higher in 2021 than in 2020, according to the latest Leading Indicator of Remodeling Activity (LIRA) released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University (JCHS).

In the first two quarters of 2020, the LIRA projected annual remodeling spending would decline by the middle of 2021. However, with greater clarity on the impact of the coronavirus (COVID-19) pandemic on the overall economy and the general resilience of residential housing markets, the third quarter 2020 LIRA report projected moderate gains in homeowner spending for improvement and repairs through the majority of 2021.

“The remodeling market continues to benefit from a strong housing market—including accelerating growth in homebuilding, sales, and home equity," Chris Herbert, managing director of the JCHS, said in a news release. “In addition to routine replacement and repair projects, homeowners are likely to pursue more and larger discretionary home improvements this year as the broader economy recovers.”

The fourth quarter LIRA projects year-over-year growth in renovation and repair spending of 5.2% by the first quarter of 2021. While gains are projected to soften to 2.1% by the third quarter of next year, LIRA forecasts growth in renovation and repair spending will increase to 3.8% by year-end.

In a report released in the fourth quarter of 2020, the JCHS forecast the DIY home-improvement surge experienced during the early months of 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. With DIY levels expected to return to more normal levels, the continued growth of the home improvement market will likely be tied to professional activity levels.

The LIRA provides a short-term outlook for national home improvement and repair spending and is benchmarked to national spending estimates from the U.S. Department of Housing and Urban Development’s American Housing Survey (AHS). The fourth quarter 2020 LIRA includes updated and revised historical spending levels and growth, due to the incorporation of new benchmark data from the 2019 AHS.

With the newer AHS data, the LIRA also shows higher market size estimates and projections for remodeling activity in 2018, 2019, 2020, and 2021. Remodeling spending in 2018 was more robust than previously estimated, which impacts LIRA’s previous estimates for the size of the remodeling market for 2018-2020 as well as projections on market size in 2021.

“With the release of new benchmark data from the American Housing Survey, we’ve raised our projection for market size in 2021 by about $4 billion, or 1%, to $352 billion,” Abbe Will, associate project director in the Remodeling Futures Program at the JCHS, said. “Spending in 2018 and 2019 was slightly more robust than previously estimated, growing 12.8% over these two years compared to 11.5% as estimated.”

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 was re-benchmarked in April 2016 to a broader market measure based on the AHS. Once every two years, with new historical AHS, the LIRA benchmark series will also be updated. The next quarterly LIRA report will be released in mid-April.