Remodeling activity stays strong despite ’sluggish’ housingby Marcie Geffner
Spending for home remodeling is expected to post solid growth this year, though that momentum might begin to slow in the October, November and December timeframe, according to a statistical analysis known as the Leading Indicator of Remodeling Activity (LIRA).
The latest LIRA was released today by the Remodeling Futures Program at the Joint Center for Housing Studies (JCHS) at Harvard University in Cambridge, Mass.
Sluggishness in the housing market recovery and fewer home sales are expected to soften the growth in remodeling from double-digits through September to the high single-digits at the end of the year. Still, even that pace would be in positive territory.
Remodeling tracks housing market
In a statement, Eric S. Belsky, managing director of the Joint Center, said the housing recovery had lost some of its momentum, at least temporarily.
“As a result, remodeling spending is expected to follow suit and see slower growth beginning later this year,” Belsky said.
Kermit Baker, director of the Remodeling Futures Program at the Joint Center, added that property owners’ spending for home improvement had already recovered much of the losses of the housing downturn.
“As spending moves into the next phase, we expect to see recent double-digit growth tail off to its longer-term average in the mid-single-digit range,” Baker said.
In a JCHS blog post, research analyst Abbe Will said, home improvement spending is expected to grow 9 percent this year.
“In the near term,” Will wrote, “lower rates of household mobility and lean inventory levels of homes on the market seem to be helping the home improvement industry. That, coupled with an aging housing stock and deferred expenditures during the recession, have owners catching up with delayed remodeling projects this year.”
Mortgage rates removed from LIRA
Low interest rates normally would be expected to boost spending for home remodeling. However, that traditional statistical relationship has “significantly deteriorated” to the point at which long-term rates, like mortgage rates, were removed from the LIRA estimation model this quarter, the Joint Center explained.
Other economic indicators used in the LIRA model are the National Association of Home Builders’ Remodeling Market Index-Future Expectations; National Association of Realtors’ Pending Home Sales Index; Bureau of Labor Statistics’ Number of Employees of Residential Remodelers; Institute of Supply Management’s Purchasing Managers’ Index, and the U.S. Census Bureau’s Single Family Housing Starts, Retail Sales at Building Materials and Supplies Dealers and Manufacturers’ Shipments of Construction Materials, Wood Products and Household Appliances.
The LIRA model was designed to estimate national spending for home improvements for the current quarter and next three quarters. The indicator offers a short-term outlook of homeowner remodeling activity and is intended to help identify future turning points in the business cycle of this important economic sector.
The Joint Center for Housing Studies started its Remodeling Futures Program in 1995 to study factors that influence the growth and changing characteristics of U.S. home renovation and repair activity.