Zonda’s national Residential Remodeling Index (RRI) posted a reading of 167.4 in the second quarter, a 2.4% year-over-year increase but a 0.2% sequential decrease from the first quarter. Zonda projects that quarter-to-quarter decreases will continue moving forward with year-over-year decreases expected to begin by the fourth quarter of 2023.

When averaged on an annual basis, the RRI is projected to increase 1.7% for 2023, followed by decreases of 2.2% in 2024 and 1.1% in 2025, before increasing again by 1.5% in 2026. The reading of 167.4 indicates the current level of overall pro-worthy remodeling activity in the United States is 67.4% higher than the baseline year of 2007.

The second quarter forecast for the RRI is an improvement from the previous release in May, when Zonda projected activity would decrease by 1.1% for the full year 2023. Zonda says the improved forecast is due to less pessimism and “a more hopeful outlook” for the U.S.economy as inflation recedes.

Moody’s Analytics, the economic research company that forecasts the variables that Zonda uses in its RRI model, says recent data suggests a “substantial increase” in the national unemployment rate may not be necessary to subdue inflation. According to Moody’s, the economy could still fall into a full-blown recession but, at this stage, it would mostly likely be due to a Fed policy error or an outlying event that could throw the economy’s path off script.

The projected ongoing weakness in existing home sales will reduce some remodeling and replacement activity over the near-term, but Zonda says this headwind will be partially offset by the lock-in effect of higher interest rates that persuades many homeowners to stay put and upgrade current homes. The largest negative headwind in the RRI outlook is the projection by Moody’s Analytics that home values will decrease in the near-term future.

As part of the RRI calculation, Zonda estimates 17.6 million pro-worthy remodeling projects will be completed in 2022. For 2023, the number is expected to increase to 17.9 million projects before decreasing in both 2024 and 2025. On a regional basis, 311 of the 384 analyzed metropolitan statistical areas are expected to see growth in annual project volume in 2023. Among these markets, the average growth rate is forecast to be 4.3%.