Zonda’s Residential Remodeling Index (RRI) posted a reading of 165.9 in the third quarter of 2022, a 0.7% increase from the second quarter and a 9.1% increase on a year-over-year (YOY) basis. According to Zonda, the national RRI is estimated to grow 9.7% for all of 2022, but is expected to see quarter-to-quarter decreases beginning in the fourth quarter.
The latest reading indicates remodeling activity in the U.S. is currently 65.9% higher than the baseline year of 2007, the peak of remodeling in the 2000s. However, Zonda estimates the RRI will see year-over-year decreases starting in the second quarter of 2023 and continue through the next few years.
Zonda estimates the RRI will decrease 2.3% in 2023, decrease 1.7% in 2024, and decrease by 0.1% in 2025. The change in future estimates for the RRI reflect how rapidly the housing market has slowed and the probability of an economic recession in 2023, according to Zonda.
The slowdown in existing home sales over the last nine months has been three times faster than the slowdown in the mid-2000s, according to Zonda. Remodeling is forecast to take a cut from lower housing turnover via lower sales, but the more important factor for the downgraded remodeling outlook is home values. Home prices, which hold the heaviest weight in the RRI model, are projected to fall in every U.S. state in 2023. Moody’s Analytics, which provides the forecast for the variables that are used in the RRI model, underscores that the expected decrease in home prices will be a correction rather than a crash as deep as the aftermath of 2008. Moody’s projects the odds of a recession in 2023 at 50%. Projections of declines in real incomes indicate some homeowners will be forced to defer remodeling over the short-term. Homeowners that defer are more likely to be on the lower side of the income scale (below $60,000) and have most of their spending (80%) dedicated to non-discretionary items such as food, shelter, medical, and transportation.
Zonda said the home improvement industry still has tailwinds and mitigating factors, such as high levels of homeowner equity and excess savings, that will sustain remodeling activity, according to Zonda. Remodeling spend will also be supported moving forward by a large number of homes built in the early 2000s that are due for replacement projects or have finishes that need upgrading, Zonda says.
The RRI estimates the number of pro-worthy remodeling projects undertaken in 2021 was 16.1 million. Zonda projects the number of projects will increase to 17.7 million projects in 2022, followed by decreases to 17.3 million in 2023 and 17.0 million in 2024.
As part of the RRI estimation, Zonda that only 32 metropolitan statistical areas are expected to see growth in annual project volume. Among these markets, the average growth rate is expected to be 0.9%.