The latest Leading Indicator of Remodeling Activity (LIRA) forecasts growth in the remodeling market will remain solid through 2021 and into 2022. The LIRA, released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University (JCHS), projects a pace of mid-single digit gains in annual home renovation and repair spending in 2021, with 4.8% growth in spending by the first quarter of 2022.
Recent LIRA reports have trended towards a more positive outlook for the remodeling industry than reports released in the early months of the coronavirus (COVID-19) pandemic. Projections from the first two quarters of 2020 forecast remodeling spending would decline by the middle of 2021. However, as greater clarity emerged on the impact of the virus on the overall economy and the residential housing market demonstrated resilience, the LIRA began to project moderate gains for homeowner spending on remodel and repair projects throughout 2021.
Estimated year-over-year growth in remodeling spending during the first quarter of 2021 (5.5%) outpaced LIRA’s projection (5.2%) from the fourth quarter of 2020 and projections for YOY spending growth during the second and third quarters of 2021 are approximately 2.5% higher than projections from the previous LIRA report. The LIRA forecasts growth in renovation and repair spending will increase to 4.8% by the first quarter of 2022.
“With a financial boost from recent federal stimulus payments and strong house price appreciation, homeowners are continuing to invest in the upkeep and improvement of their homes,” Chris Herbert, managing director of the JCHS, said in a prepared statement. “This lift in incomes and ongoing strength of the housing market are providing homeowners incentives to make even greater investments in their homes this year.”
In the fourth quarter of 2020, the JCHS forecast the DIY home-improvement surge experienced during the early months of the COVID-19 pandemic were unlikely to be sustained long-term. The first quarter 2021 LIRA report highlights that DIY is indeed softening, meaning the continued projected growth of the home improvement market will increasingly be tied to professional activity levels.
“Although the recent surge in DIY activity is slackening as the economy continued to open up, homeowners are undertaking larger discretionary renovations that had been deferred during the pandemic,” Abbe Will, associate project director in the Remodeling Futures Program, said. “A shift to more professional projects should boost annual homeowner remodeling expenditures to $370 billion by early next year.”
While the LIRA provides a short-term outlook for national home improvement and repair spending, a recent report from the Remodeling Futures Program forecast regional trends in remodeling spending for 2021. The report projected remodeling expenditures will increase between 1-13% in 42 of the nation’s major metropolitan areas, with the largest remodeling spending gains occurring in more affordable metros in the Sunbelt region, such as Oklahoma City, Okla., Tucson, Ariz., and San Antonio, Texas. Conversely, remodeling spending growth in several high-cost metros, including New York City, Washington, D.C., Boston, and San Francisco, is projected to either decrease or increase modestly in 2021, according to the Remodeling Futures Program.
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 is benchmarked to national spending estimates from the U.S. Department of Housing and Urban Development’s American Housing Survey (AHS) and was re-benchmarked in April 2016 to a broader market measure based on the AHS. The next quarterly LIRA report will be released in mid-July.
