Despite Strong Start, Remodeling Activity May Ease Later in 2014

As spending moves into the next phase, the JCHS expects to see recent double-digit growth tail off to its longer-term average in the mid-single-digit range.

April 17, 2014
The JCHS Leading Indicator of Remodeling Activity (LIRA) for the first quarter 2014.

The JCHS Leading Indicator of Remodeling Activity (LIRA) for the first quarter 2014.

Solid growth is expected in the home remodeling market this year but momentum should begin to moderate in the fourth quarter, 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. Sluggishness in the housing market and specifically in home sales may result in a deceleration of home improvement spending from double-digit annual growth through the third quarter to a year-over-year gain in the high single digits by the end of the year.

“The housing recovery has at least temporarily lost some of its momentum,” says Eric S. Belsky, managing director of the Joint Center.  “And as a result, remodeling spending is expected to follow suit and see slower growth beginning later this year.”

“Home improvement spending has already recovered a significant share of its losses from the downturn,” says Kermit Baker, director of the Remodeling Futures Program at the Joint Center.  “As spending moves into the next phase, we expect to see recent double-digit growth tail off to its longer-term average in the mid-single-digit range.”

An important change was made to the LIRA estimation model this quarter. With the upheaval in financial markets in recent years, the traditional relationship between interest rates and home improvement spending has significantly deteriorated. As a result, long-term interest rates have been removed from the LIRA estimation model.  For more information on the implications of this change, please visit the JCHS blog.

The Leading Indicator of Remodeling Activity (LIRA) is designed to estimate national homeowner spending on improvements for the current quarter and subsequent three quarters. The indicator, measured as an annual rate-of-change of its components, provides a short-term outlook of homeowner remodeling activity and is intended to help identify future turning points in the business cycle of the home improvement industry. The development of the LIRA is detailed in “Developing a Leading Indicator for the Remodeling Industry” (JCHS Research Note N07-1). In July 2008, the LIRA was re-benchmarked due to changes in the underlying reference series. These changes are explained in “Addendum to Research Note N07-1: Re-Benchmarking the Leading Indicator of Remodeling Activity” (JCHS Research Note N08-1). The LIRA is released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University in the third week after each quarter’s closing. 

The next LIRA release date is July 24, 2014. PR

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