Harvard Predicts Sharp Slowdown in Home Remodeling
Annual gains in improvement and maintenance expenditures to owner-occupied homes are expected to decline sharply by the middle of next year, according to the Leading Indicator of Remodeling Activity by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. The LIRA projects year-over-year growth in homeowner remodeling and repair spending to shrink from 16.1 percent in 2022 to 6.5 percent by the third quarter of 2023.
“Housing and remodeling markets are undoubtedly slowing from the exceptionally high and unsustainable growth rates that followed in the wake of the pandemic-induced recession,” says Carlos Martín, project director of the Remodeling Futures Program at the Center. “Spending for home improvements will continue to face headwinds from declining home sales, rising interest rates, and the increasing costs of contractor labor and building materials.”
“Although remodeling market gains are expected to cool significantly next year, homeowners still have record levels of home equity to support financing of renovations,” says Abbe Will, associate project director of the Remodeling Futures Program. “Energy-efficiency retrofits incentivized by the Inflation Reduction Act of 2022, as well as disaster repairs and mitigation projects following Hurricane Ian will further support expansion of the home remodeling market to almost $450 billion in 2023.”
The LIRA provides a short-term outlook of national home improvement and repair spending to owner-occupied homes. The indicator, measured as an annual rate-of-change of its components, 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.