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Home-remodeling spending will surge through 2017, Harvard study says


With an improved housing market, the $300 billion annual remodeling and home-repair industry is expected to gain steam over the next two years.

Spending on home-improvement projects is projected to grow to $323.3 billion annually in the first quarter of 2017, up from the current estimated pace of $294.9 billion annually, Harvard University’s Joint Center for Housing Studies reports.  

The Harvard study is projecting that spending will accelerate quickly each quarter in the coming year, from the current level of 4.4 percent annual growth, and reach 9.7 percent annual growth by the first quarter of 2017. Without adjusting for inflation, spending on home improvements is already near the prerecession peak, Harvard says. 

The National Association of Home Builders (NAHB), however, projects spending in the home-improvement industry to grow at a slower pace of just over 1 percent in 2016. NAHB also pegs the annual rate of spending at a much lower $153.1 billion, a figure the trade group extrapolates from monthly U.S. Census Bureau data.

Harvard, by contrast, bases its figures — which reflect spending on home-improvement projects for single-family, owner-occupied homes only — on several data sources and surveys. The university also recently changed its model to include home-repair projects. It once only tracked traditional remodeling, such as kitchen and bathroom improvements.

Putting a number on home-improvement spending is “more of an art, rather a science,” NAHB economist Stephen Melman said.

“The trends are what is really important,” Melman said. NAHB also has projected a rising spending trend based on its first-quarter survey of remodeling companies. Remodelers were slightly less confident in the market overall in the first-quarter survey, compared with fourth-quarter 2015, but the majority still view conditions as favorable.

An upward trend

 Based on various surveys, analysts estimate that roughly a quarter of all remodeling spending is financed through loans and credit. Most people still pay for improvements out of their savings. The Harvard and NAHB studies agree that home-improvement spending is growing, however, and that’s closely linked to improved home sales and increases in home prices.

“Home sales is one [factor] that is feeding into our projection," said Abbe Will, a research analysts at Harvard’s Joint Center. "A lot of remodeling does tend to happen in the first couple of years after purchase as the new homebuyer tries to make that home fit their needs.” 

Rising home prices also are boosting remodeling spending, Will said. As home prices rise, more owners tend to embark on home-improvement projects and can also tap their built-up equity to do larger projects.

"A lot of people have made a decision that they are going to stay where they are, and renovate," NAHB's Melman said. "There could be a lot of reasons for that. Maybe they like the neighborhood and moving up to a much larger house is something that they can’t really afford." 

Tim Shigley, a remodeler in Wichita, Kansas, who also chairs NAHB’s remodelers council, said business has been picking up at a steady pace, but is still down from the peak period before the recession. Shigley said the remodeling business in the Wichita area tends to track closely with the sale of new homes. Generally speaking, the new-home side of the housing U.S. market has been a weaker link in the recovery, analysts say.

Shigley said remodelers and the construction industry as a whole also face a challenge in wooing skilled workers.

“Are we scratching back and doing better as an industry, yeah,” Shigley said. “I feel good about where we are going.” 


 

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