Annual gains in remodeling spending are projected to slow significantly by the middle of next year, according to the latest Leading Indicator of Remodeling Activity (LIRA) released by the Remodeling Futures Program at the Joint Center for Housing Studies (JCHS) of Harvard University. Recent LIRA releases have suggested a gradual pattern of deceleration; however, the most recent release suggests a dramatic slowdown compared with recent projections. The LIRA projects year-over-year growth in remodeling spending will shrink to 0.4% by the second quarter of 2020, 5.9 percentage points lower than today.
Homeowners are estimated to have spent $322 billion on remodeling in the second quarter of 2020, a 6.8% increase from the year earlier, and are projected to spend $328 billion in the third quarter, marking a 6.3% year-over-year increase. Remodeling spending is expected to decline in nominal terms at the turn of the new year, with the projected $323 billion in spending during the second quarter of 2020 only 0.4% higher than estimated remodeling spending for the second quarter of 2019.
“Declining home sales and homebuilding activity coupled with slower gains in permitting for improvement projects will put the brakes on remodeling growth over the coming year,” says Chris Herbert, managing director of the Joint Center for Housing Studies. “However, if falling mortgage interest rates continue to incentivize home sales, refinancing, and ultimately remodeling activity, the slowdown may soften some.”
The release of new benchmark data from the American Housing Survey lead the JCHS to lower its projection for the remodeling market size about 6%, according to associated project director in the Remodeling Futures Program Abbe Will. Spending in 2016 and 2017 was not nearly as robust as projected, Will said, with annual spending growing only 5.4% over the two years compared to projected growth of 11.9%.
The previous LIRA, released in April 2019, predicted year-over-year increases in residential remodeling expenditures would shrink to 2.6% through the first quarter of 2020.
LIRA provides a short-term outlook for national home remodeling spending and is designed to project the annual rate of change in spending for the current quarter and following four quarters. The next quarterly report will be released in mid-October.
