Homeowners cutting back on improvement spending

CAMBRIDGE, MA -- Owner spending on home improvements will continue to trend down through 2009 and into the first part of next year according to the Leading Indicator of Remodeling Activity (LIRA), released today by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. With annual declines hovering around 11 percent for the next several quarters, some signs suggest the depressed remodeling market is close to a cyclical bottom.

“Homeowners are still hesitant to undertake major remodeling projects. While the pace of decline is moderating, increased remodeling activity will not materialize until further signs of recovery emerge in the broader housing market,” says Nicolas P. Retsinas, director of the Joint Center for Housing Studies.

A few components of the LIRA point to renewed strength in the industry, though the overall outlook going into 2010 is still bleak. “There are some positive developments for the remodeling industry, such as low financing costs for home improvement projects and rising home sales in a growing number of markets,” says Kermit Baker, director of the Remodeling Futures Program at the Joint Center for Housing Studies. “Weak home prices and decreased cost recovery for most types of remodeling projects, however, discourage owners from pursuing typical upper-end improvements.”

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 October 15, 2009.

The Remodeling Futures Program, initiated by the Joint Center for Housing Studies in 1995, is a comprehensive study of the factors influencing the growth and changing characteristics of housing renovation and repair activity in the United States. The Program seeks to produce a better understanding of the home improvement industry and its relationship to the broader residential construction industry.

The Joint Center for Housing Studies is Harvard University’s center for information and research on housing in the United States. Established in 1959, it is a collaborative unit affiliated with the Graduate School of Design and the Harvard Kennedy School. The Joint Center analyzes the dynamic relationships between housing markets and economic, demographic, and social trends, providing leaders in government, business, and the non-profit sector with the knowledge needed to develop effective policies and strategies. For more information, please visit jchs.havard.edu.