Growing Home Sales Expected to Fuel Remodeling
Home remodeling is expected to soon kick back into gear. LIRA, the Leading Indicator of Remodeling Activity produced by the Joint Center for Housing Studies at Harvard University is projecting that annual spending growth for home improvements will accelerate to 4.0% by the first quarter of 2016.
LIRA is designed to estimate national homeowner spending on improvements for the current quarter and subsequent three quarters. The indicator, measured as an annual rate-of-change of its components, provides a short-term outlook of homeowner remodeling activity and is intended to help identify future turning points in the business cycle of the home improvement industry.
Expenditures on remodeling reached a recent peak of $146.0 billion in the third quarter of 2014 but declined over the following two quarters to an estimated $140.0 billion in the first quarter of this year. Second quarter totals were estimated at 144.7 billion. For the upcoming three quarters LIRA estimates the moving average will change by 3.5, 2.9 and 4.0 percent respectively.
“A major driver of the anticipated growth in remodeling spending is the recent pick up in home sales activity,” says Chris Herbert, Managing Director of the Joint Center. “Recent homebuyers typically spend about a third more on home improvements than non-movers, even after controlling for any age or income differences, so increasing sales this year should translate to stronger improvement spending gains next year.”
“Other signals of strengthening remodeling activity include sustained growth in retail sales of home improvement products and ongoing gains in house prices across much of the country,” says Abbe Will, a research analyst in the Remodeling Futures Program at the Joint Center. “Rising home prices means rising home equity, which should encourage improvement spending by a growing number of owners.”