Tracking a Turnaround
Annual expenditures for improvements and repairs to owner-occupied homes are expected to decline at an accelerating rate through the first half of 2024, according to the Leading Indicator of Remodeling Activity (LIRA) released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University.
The LIRA projects that year-over-year spending on homeowner improvements and maintenance will shrink by 2.7% through the first quarter of next year and by 5.9% through the second quarter, following a slowdown in growth that began in the final quarter of 2022.
“Home-remodeling activity continues to face strong headwinds from high interest rates, softening house price appreciation, and sluggish home sales,” said Abbe Will, associate project director of the Remodeling Futures Program. “Annual spending on homeowner improvements and repairs is expected to decrease from $486 billion through the second quarter of this year to $457 billion over the coming four quarters.”
Carlos Martín, project director of the Remodeling Futures Program, added that “ongoing reductions in household moves will cause a decline in the remodeling and repair activity that typically occurs around the time of a home sale. The magnitude of the impact may be offset if owners who are locked into their current homes with ultra-low mortgage rates continue to renovate to meet changing needs or take advantage of new federal incentives for energy-efficiency retrofits.”
The Leading Indicator of Remodeling Activity (LIRA) provides a short-term outlook of national home-improvement and repair spending to owner-occupied homes. The indicator is designed to project the annual rate of change in spending for the current quarter and subsequent four quarters, and is intended to help identify future turning points in the business cycle of the home-improvement and repair industry. Originally developed in 2007, the LIRA was re-benchmarked in April 2016 to a broader market measure based on the biennial American Housing Survey.
The Remodeling Futures Program, initiated by the Joint Center for Housing Studies in 1995, is a comprehensive study of the factors influencing the growth and changing characteristics of housing renovation and repair activity in the U.S. The program seeks to produce a better understanding of the home-improvement industry and its relationship to the broader residential construction industry.
The “Improving America’s Housing 2023” report, also issued by the Joint Center for Housing Studies of Harvard University, noted that the pandemic spurred home-improvement spending that dropped once infection rates decreased and individuals were able to leave their homes and return regularly to public spaces.
“The widespread adoption of working from home, spectacular growth in home equity and saving rates, and the continued aging of the housing stock lifted the home-remodeling market to an unprecedented height of nearly $500 billion in 2021,” the report noted.
“Growth in market spending involved households at all income levels and projects of all sizes, but with disproportionate surges in home improvement among middle-income homeowners doing moderately priced projects, many of which involved their own labor.
That trend has shifted. Deane Biermeier, a housing-market expert and general contractor, recently told Forbes that the softening trend will be with us for some time.
“Homeowners spent a great deal in the past couple of years on home renovations,” he noted. “The wave didn’t have much of a chance of lasting very long. It’s not surprising … that the combination of higher borrowing costs and economic uncertainty will continue to have a negative effect on the renovation market.”
Biermeier explained that the steep increase in home renovation spending during COVID-19 was a direct result of forced time spent at home and was not an increase that would have been seen otherwise, so the slowing over the last few years is more of a leveling back to normal than a true decrease. But he is hopeful that home-renovation spending will eventually increase again.
“I don’t see home-improvement spending increasing any time soon,” he told Forbes. “My hope is that home-renovation spending will level off and stop falling by the end of 2024.”