Zonda’s Residential Remodeling Index (RRI) posted its 36th consecutive quarter of annual and quarter-to-quarter gains since national remodeling activity bottomed in 2011. According to the RRI, big-ticket residential remodeling spending in the first quarter of 2021 increased 10.8% on a year-over-year (YOY) basis and increased 1.9% from the fourth quarter of 2020.

The Q1 2021 RRI reading of 141.8 indicates economic conditions known to impact remodeling are 41.8% higher than the old peak in 2007. The RRI has averaged annual increases of 10.8% over the last four quarters. According to Zonda, the last time YOY gains of 10% were observed was back in 2005.

Activity is expected to remain strong in 2021, but the forecast has once again shifted. After overcoming uncertainty about economic stimulus in the third quarter of 2020, the fourth quarter RRI adjustment showed remodeling activity would continue trending upwards over the short-term horizon. Zonda now projects in its Q1 RRI that remodeling growth will flatten in 2022 before growing again in 2023.

The updated forecast reflects a U.S. economy that, according to Zonda, still has “a ways to go in its COVID recovery and a red hot existing home market that will cool off as interest rates begin to rise.” The RRI is now predicted to average annual growth of 7.4% in 2021, 0.04% in 2022, and 2.0% in 2023.

Zonda said over the past twelve months of COVID-19, U.S. remodeling and replacement activity has derived its main strength from a record-setting housing market and a buildup of disposable income. Strong existing home sales and record home values have helped drive home improvement activity while stay-at-home orders related to the pandemic created an unprecedented surge of remodeling and replacement spending that has carried through into 2021.

While the gains projected for the remodeling industry are not as strong as 2020, Zonda forecasts 2021 will be another “great year” for the remodeling and replacement industry compared to any other year in history. In the long-term future, the likelihood for rising interest rates to cool off the existing home market will take some remodeling potential off the table, contributing to Zonda’s projection of a relatively flat 2022 for the remodeling industry. Several factors, such as the shortage of qualified labor and material supply issues, are causing inflationary pressures for remodeling contractors and limiting project growth. In addition, growing inflation in the broader U.S. economy is now being closely watched as this has strong implications for interest rates and the overall economic outlook.

Zonda estimates the number of pro-worthy remodeling projects worth $1,000 or more completed in 2020 was 14.4 million, a 9.9% increase compared to 2019. For 2021, Zonda forecasts the number of pro-worthy projects completed to increase to 15.5 million.

Zonda projects 381 metropolitan statistical areas are expected to see growth in annual project volume in 2021. Among those markets, the average growth rate is expected to be 6.3%.

The RRI is based on a statistical model that takes into account data such as household level remodeling permits and consumer-reported remodeling and replacement projects. It uses a model to predict the number and dollar volume of home improvement and replacement projects nationwide worth at least $1,000 in 381 metropolitan statistical areas and nationwide.