Slight Gains in 2023 Outlook for Residential Remodeling
After several years of double-digit gains, expenditures for improvements and repairs to the owner-occupied housing stock are expected to grow only modestly in 2023, 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 a steep deceleration in annual gains of home renovation and maintenance spending from 16.3 percent at the close of 2022 to just 2.6 percent by year-end 2023.
Deep dive on the data
Compared with last quarter's LIRA release, the updated LIRA now shows considerably higher market size estimates and projections for remodeling and repair activity in 2020, 2021, 2022, and 2023. According to Center estimates based on tabulations of the latest AHS, spending growth in 2020 and 2021 was more robust than the LIRA model estimated, though the difference between estimated and actual growth rates closed substantially by the end of 2021. Over this two-year period of remarkable pandemic-induced changes in housing and lifestyle decisions, the homeowner remodeling and repair market expanded fully 24 percent from $328 billion in 2019 to $406 billion in 2021 compared with LIRA estimated growth of 12 percent. The much stronger growth in benchmark remodeling and repair spending from 2019 to 2021 has implications for the size of the market previously modeled by the LIRA model for 2020, 2021, and 2022, as well as LIRA projections for 2023.
Previously, the LIRA projected a homeowner improvement and repair market size of $429 billion in 2022 with spending growing to $440 billion in 2023. Now with the replacement of AHS-based benchmark data for previously modeled estimates, the LIRA model indicates remodeling activity reached $472 billion in 2022 and projects spending will reach $485 billion this year. The implication of significantly stronger growth in actual remodeling and repair spending from 2019 to 2021 is an expansion in market size estimates for 2022 of 10.2 percent or $43.8 billion, and a similar expansion in market size projections for 2023 of 10.2 percent or $44.9 billion.
What the analysts think
"Slowdowns in existing home sales, house price appreciation, and mortgage refinancing activity coupled with growing concerns for a broader economic recession will cool home remodeling activity this year," says Carlos Martín, Project Director of the Remodeling Futures Program at the Center. "Homeowners are likely to pull back on high-end discretionary projects and instead focus their spending on necessary replacements and smaller projects in the immediate future."
"The massive pandemic-induced changes in housing and lifestyle decisions fueled remodeling and repair spending in 2020 and 2021, growing 23.8 percent over these two years compared with the 12.5 percent originally estimated," says Abbe Will, associate project director of the Remodeling Futures Program, speaking on how the release of new benchmark data from the American Housing Survey recalibrates the overall market size. "While the pace of expenditures is expected to slow substantially this year, we've raised our projection for the remodeling market size in 2023 by about $45 billion, or 10.2 percent, to $485 billion."