After years of feverish remodeling activity, Americans are starting to cool on home improvement projects.
The annual gain in homeowner spending on home improvements and repairs is expected to drop from 6.3% during the current quarter to less than 1% by the second quarter of next year, according to the Leading Indicator for Remodeling Activity from the Joint Center for Housing Studies of Harvard University.
Others, however, argue that the slowdown in remodeling is already upon us. Smaller remodeling companies have been particularly hard hit by this trend, said Robert Dietz, chief economist for the National Association of Home Builders.
“We’ve been noticing in the data this year that the remodeling market has been cooling,” Dietz said. “The market is cooling among some of the smaller remodelers. If you talk to the larger ones, they’re busy.”
The National Association of Home Builders latest quarterly Remodeling Market Index came in at 55, up one point from the previous quarter but down three points year over year. Figures above 50 in this index indicate that more remodelers are reporting market activity as having been higher rather than lower compared with the previous quarter.
Why Americans are cooling on home improvement projects
Chris Herbert, managing director of the Joint Center for Housing Studies, attributed the slowdown to a confluence of factors. “Declining home sales and homebuilding activity coupled with slower gains in permitting for improvement projects will put the brakes on remodeling growth over the coming year,” he said in the report.
Though existing-home sales rebounded in May, sales activity has been much slower so far in 2019 as inventory has remained low. Home remodeling activity is strongly associated with home sales — sellers will seek to renovate ahead of listing their home, while buyers will make changes to a property so it better suits their taste and needs.
Another factor: home price appreciation has slowed and isn’t outpacing income growth like it once did in some markets. When home prices were rising faster than wages, “home owners felt wealthier and were more likely to reinvest in their homes,” Dietz said.
The bottom has not fallen out of the remodeling market, however. The decline in interest rates throughout 2019 thus far could provide an opening for home buyers. If that sparks more demand for homes, then home prices could continue growing at a healthy pace.
Plus, other longer-term trends are beneficial for the remodeling industry. Environmentally-conscious consumers continue to seek out energy efficiency-related improvements, while baby boomers continue to invest in changes to their homes that will enable them to age in place.
“The fundamental drivers of the market are still there,” Dietz said.