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Is Home Renovation Spending Going Up?


Renovation spending on the rise

You might not associate 2012 with the term "spending spree", but that's what some homeowners are going on -- at least when it comes to their renovations.  That's because the all-time low interest rates aren't just affecting sales of new and existing homes, but have also triggered a growth in home remodeling projects as well.

According to the Leading Indicator of Remodeling Activity (LIRA) report that was released this week by the Remodeling Futures Program at Harvard University, the number of homeowners currently remodeling their homes continues to increase.

The LIRA is designed to estimate the national homeowner spending on improvements for the current quarter and the subsequent three quarters.  It is released in the third week following each quarter's closing.  All of the data in it is gathered by the Remodeling Futures Program at the Joint Center of Housing Studies at Harvard.

The hope is that the report provides more understanding of the factors that influence the growth and ebb and flow of the home repair industry.

The latest report was released on October 18th, and it shows substantial growth when compared to the previous quarters this year.

Home improvement spending increased last year because of the mild winter, but then dropped off over the summer.   However, the LIRA shows that nationwide spending on home improvement projects picked back up in the third quarter, and should continue to do so in the months to come.

In fact, the study suggests that home improvement spending could reach double-digit growth from 2012 through the first six months of 2013!
Because of the spike in renovation projects, stocks of home improvement stores Home Depot and Lowes are trading at higher levels than they have in 10 years.  

That's good news for contractors, who saw their workload increase last year, then decrease during the first half of 2012.

If the LIRA is any indication, more homeowners will be hiring contractors in the months to come to do some home repairs and renovations.

But why now? What has caused the recent increase?

Experts say it whenever the housing market is doing well, homeowners who are considering selling -- but who haven't listed their home yet -- will begin to make improvements in preparation of putting it on the market.

In other words, they want to make any necessary upgrades and repairs before they try to sell it.

That's not really the case here, though.  Even though we've seen slight upticks recently, our housing market still can't be considered to be "doing well".


Experts also say that when interest rates are low (like they are right now), homeowners may not be interested in selling -- but are interested in making some improvements around their homes just for themselves.  So, they'll apply for a second mortgage, simply to use that money on remodeling projects.

And, if we see steady improvement in our sales numbers, those renovation numbers will continue to go up.

According to Kermit Baker, the Director of the Remodeling Futures Program, anytime the housing market improves, you can expect to also see more money spent on home improvements, even if it takes awhile for those statistics to increase.

“Strong growth in sales of existing homes and housing starts, coupled with historically low financing costs, have typically been associated with an upturn in home remodeling activity some months later,” sad Baker at a press conference following the release of the latest LIRA report

“While the housing market has faced some unique challenges in recent years, this combination is expected to produce a favorable outlook for home improvement spending over the coming months.”


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