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Remodeling spending to cool with housing slowdown

Just as with the general slowdown in the U.S. housing market, growth of the home-remodeling industry is projected to cool off in 2019, says Harvard University's Joint Center for Housing Studies.

“We have had a couple of good years — two or three years of above historically average growth for the remodeling industry,” Abbe Will, a research associate with the school, told Scotsman Guide News.

remodelspend“This is potentially a return to more sustainable growth for the industry.”

A record year for remodeling? 

Harvard projects that remodeling spending will increase by around 5 percent in 2019, to $354 billion, which would exceed the past peak in spending recorded 13 years ago at the height of the last housing boom. In 2018 and 2017, spending rose by an estimated 7.5 percent and 6.2 percent, respectively, Will said.

Adjusted for inflation, spending in 2006 was about $346 billion. Harvard estimated spending in 2018 at about $337 billion, just below the 2006 record level.

Will said remodeling spending tends to go the way of the greater housing market. When home prices are rising quickly and home sales are robust, the remodeling industry has typically done well. Today’s housing market remains solid, but price growth has been slowing and sales have flattened out. Mortgage rates also have ticked up, which tends to make people less willing to tap their home equity, she said.

“A lot of remodeling does happen around the time of sales,” Will said. “If sales are slowing down across the country, it is going to kind of nip remodeling in the bud a little bit.

“But again, we are still projecting growth,” Will said. “It is still more or less the average growth we see in the industry.”

She also noted that the business of remodeling is local and the activity level in each metro area will be different.

“We recognize that some markets are doing a lot better than others,” Will said. “Always, your local housing market will impact remodeling spending, as well as key drivers: incomes, house prices and house-price growth.”

In nominal terms, without adjusting for inflation, spending on home remodeling and repairs is already at a record.

The data is sketchy on how much of this work was financed by home equity financing, but Will said most surveys indicate that around 25 percent of home repair and remodeling is paid for via loans that tap home equity. These projects tend to be either larger emergency repairs or full-blown, expensive home remodels. The typical homeowner uses savings or credit cards to finance smaller projects. 


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