Big-ticket residential remodeling spending increased 10.3% on a year-over-year (YOY) basis in the fourth quarter of 2020, according to the latest Residential Remodeling Index (RRI) released by Zonda. The Q4 2020 reading of 137.9 indicates economic conditions known to impact remodeling are 37.9% higher than the old peak in 2007.
Remodeling spending increased 1.7% from the third quarter, marking the 35th consecutive quarter of annual and quarterly gains since remodeling activity bottomed in 2011. Zonda’s Q3 RRI release in October 2020 predicted the streak of quarterly and annual growth would be snapped in 2021, but the RRI model, updated with the latest forecasts for its economic and housing variables, now predicts remodeling activity will continue trending upwards over the short-term horizon without declines.
Zonda forecasts the RRI will average annual growth of 4.8% in 2021, 1.6% in 2022, and 4.2% in 2023, due to greater optimism in the economic outlook and strong activity in the housing market.
Zonda said while the share of long-term unemployed remained high on both the December and January jobs reports, the passage of a second round of economic stimulus by the government was a relief. Economists expect the $900 billion COVID-19 relief bill will act as both a preservation tool and a stimulant due to expanded unemployment benefits, $325 billion in Paycheck Protection Program (PPP) loans, and direct checks included in the bill.
The positive forecast for remodeling has been supported by the record-setting housing market, according to Zonda. Historically low mortgage rates and pandemic-driven demand drove existing home sales in 2020 to their highest level since 2006, before the Great Recession. While restricted by low levels of for-sale supply, the growth in existing home sales, particularly in the suburbs, bodes well for future remodeling activity, as new homeowners are likely to start making renovations, according to Zonda.
The remodeling market in 2020 benefited from a large amount of pent-up spending by homeowners whose income was not impacted by the pandemic. Renovation and home improvement projects were started with funds that otherwise would have been spent on vacations. Stock market wealth, record-high savings rates, and the refinance boom are factors Zonda says give optimism that money will continue to flow into home upgrades in 2021. Despite possible headwinds in the form of labor shortages, supply chain issues, and increasing costs for materials, the remodeling market is expected to experience positive growth in 2021, according to Zonda.
Zonda estimates the number of big-ticket, pro-worthy remodeling projects—worth $1,000 or more—completed in 2020 was 14.4 million, a 9.87% increase from 2019. Zonda forecasts the number of projects completed in 2021 to increase to 15.1 million.
According to Zonda, 378 metropolitan statistical areas are expected to see growth in annual remodeling project volume in 2021 and, among those markets, the average growth rate is expected to be 4.5%
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.