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Home remodeling bounces back as housing market recovers

Homeowners are expected to pump billions more into repairs and renovations in the coming year, analysts believe, a rising trend that should translate into more home improvement loans and refinancing.

Driven by a stronger economy, home improvement spending has already bounced back near to the level of the years before the Great Recession downturn, Harvard’s Joint Center for Housing Studies said.

The remodeling industry is getting a big boost from increased home sales and higher home prices, said Abbe Will, a research analyst with Harvard’s Joint Center. People tend to spend on renovations when they first move into a house or plan to sell. She also said that as home values increase, homeowners are more likely to spend their built-up equity on discretionary projects, like new kitchens and baths, that they might have put off during the downturn.

“Remodeling does tend to follow the housing market,” Will said.  “A healthy housing market means a healthy remodeling market, ultimately.”

Remodeling figures are difficult to track, however, and spending estimates vary. Seasonally adjusted figures from the Census Bureau suggest that spending on residential remodeling declined to an annual rate of $101.4 billion in May, down 3 percent compared to 2014. The Census Bureau excludes all rental, seasonal and vacant properties in its estimates.

Harvard publishes a quarterly index that estimates home renovation spending of owner-occupiers only, excluding rentals, and does not attempt to adjust the figures for inflation. The Center projects that the annual spending pace will rise to $151.1 billion this summer, up 3.5 percent compared to the third quarter of 2014. Spending will increase anywhere from 2.8 percent to 4.3 percent over the next four quarters compared to the corresponding quarter a year before, the Center says.

Remodeling peaks in the summer months before falling back in the fall and winter.

Large remodeling projects are on the rise

In quarterly surveys by the National Association of Home Builders (NAHB), builders have reported that home remodeling has increased each quarter since mid-year 2013.

“We have had fairly decent price appreciation of existing homes,” said Paul Emrath, NAHB’s vice president of Survey and Housing Policy Research. “Credit terms for home improvement loans haven’t gotten extremely easy,  but they are a little bit better than they were, and sales of homes have been reasonable.”

Emrath said that NAHB expects remodeling spending by owner-occupiers alone to increase by roughly $2 billion this year and $5 billion next year.  

Builders are also reporting that larger home renovations — the type typically funded through loans and home equity lines of credit — are on the rise.

“One of things that we have seen come back since the downturn is whole-home remodeling,” Emrath said.

“Historically, a little over 40 percent of our remodelers said that was a common project for them. That dropped all the way down to 21 [percent] in 2010. That has come back in the last three times we asked it, where it is back over 40 [percent] now.”

Harvard estimates that the overall remodeling industry, including rentals and multifamily properties, tops $300 billion annually, of which owner-occupied properties account for the largest piece. Will said surveys suggest that about 25 percent of remodeling is financed, and the rest is paid for in cash or savings. She pointed out, though, that data is limited on how home repairs are financed. 

“We are seeing levels [of home equity] rising again in the last couple of years,” Will said. “Refinancing is certainly happening with these low interest rates, but again, the actual transfer of cashed-out equity to home improvements, we don’t have solid data on that.”


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