'Below-Average' Home Remodeling Growth Expected by 2020

Mike Sorohan msorohan@mba.org

April 30, 2019

Home remodeling has been on an extended kick the past few years, with more homeowners opting to stay in their homes longer amid rising home prices and housing inventory shortages. Now, several forecasts see a slowdown in remodeling activity--which, for the mortgage industry, might not be such a bad thing.

The Joint Center for Housing Studies of Harvard University, Cambridge, Mass., said this month its Leading Indicator of Remodeling Activity forecasts year-over-year growth in homeowner remodeling expenditure to slow from the current 7 percent to 2.6 percent by first quarter 2020.

If correct, the forecast would mark the first time the Index fell below the market's historical average of 5 percent since 2013.

In a separate report, the National Association of Home Builders' Remodeling Index fell by three points in the first quarter, and its futures market indicators fell by two points.

"Cooling house price gains, home sales activity, and remodeling permitting are lowering our expectations for home improvement and repair spending this year and next," said Chris Herbert, Managing Director of the Joint Center. "Yet, more favorable mortgage rates could still give a boost to home sales and refinancing this spring and summer, which could help buoy remodeling activity."

"Home improvement and repair spending has been in an extended period of above trend growth for several years, due to weak home building, aging homes and other factors," added Abbe Will, Associate Project Director in the Remodeling Futures Program at the Center.

The NAHB Remodeling Market Index posted a reading of 54 in the first quarter, falling three points from the previous quarter. The RMI has been consistently above 50--indicating that more remodelers report market activity is higher compared to the prior quarter than report it is lower--since second quarter of 2013.

NAHB said current market conditions fell by four points from the previous quarter to 53. Among its three major components, major additions and alterations fell by seven points to 49; minor additions and alterations fell by one point to 55 and the home maintenance and repair component decreased by three points to 56.

Future market indicators dropped two points from the previous quarter to 54. Calls for bids fell by three points to 54; amount of work committed for the next three months increased by two points to 54; the backlog of remodeling jobs fell by five points to 54; and appointments for proposals held steady at 55.

NAHB Chief Economist Robert Dietz noted the forecast calls for slowing growth, "given declining home price appreciation and existing home sales volume, combined with rising construction costs." However, NAHB Remodelers Chair Tim Ellis said current conditions continue to mostly bode well.

"The demand for remodeling is strong in many parts of the country due to insufficient home construction and an aging housing stock," Ellis said. "However, it can be difficult to find skilled labor for remodeling projects."

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