Home Remodeling Spending to Accelerate into 2014

Harvard's Leading Indicator suggests that home improvement spending growth will peak in early 2014

Daryl Delano · October 17, 2013

The Leading Indicator of Remodeling Activity (LIRA) report released by Harvard’s Joint Center for Housing Studies (JCHS) documents continued market improvement, and predicts strong gains for the balance of 2013 and into the early months of 2014.

Following a 12-month period when annualized growth averaged just under 5 percent, the LIRA shows home improvement spending momentum building to double-digit growth in the months ahead.  By the first quarter of 2014, spending for home improvement projects is predicted to be growing at an annualized rate of 17.3 percent, with the dollar value of activity projected to reach an annualized total of $148.9 billion.

The JCHS expects the first quarter of 2014 will represent the peak of growth for this recovery cycle, although still–robust double-digit growth rates will likely be posted at least through the spring and early summer of next year.

“Existing home sales are still growing at a double-digit pace, and rising house prices are helping homeowners rebuild equity lost during the housing crash,” notes Kermit Baker, the director of the Remodeling Futures Program at Harvard’s JCHS.

In its most recent release, the National Association of Realtors reported existing home sales nationwide through the first two-thirds of 2013 were running 11.9 percent ahead of the total recorded over the first eight months of 2012.  Since recent homebuyers are traditionally the most active in the home improvement market, the growth in sales of existing homes is providing more opportunities for remodeling projects.

The LIRA is compiled by analyzing recent trends in eight specific indicators of market activity (e.g., housing starts, pending home sales, retail sales at building supply stores, etc.) which together have historically had strong correlations to remodeling spending.  After weighting the components to reflect their relative correlation and lead times with respect to historical remodeling spending trends, the factors are applied to develop a forecast of near-term changes in the market.

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