Home Remodeling Market Forecasted To Slow Down After A Decade Of Growth

Mortgage News May 11, 2023

According to a recent news release from the Joint Center for Housing Studies of Harvard University, home remodeling activity is forecasted to slow down in the first quarter of next year, marking the end of a decade of consistent growth. This slowdown is expected to be accompanied by a decrease in the number of projects being financed.

The Leading Indicator of Remodeling Activity, which provides a short-term outlook for home improvement and repair spending on owner-occupied homes, remained at 471 in the first quarter compared to the prior quarter. However, it had increased from 414 in the first quarter of 2022. The Joint Center anticipates a decrease in year-over-year gains, with a projected drop of 2.8 percent in the first quarter of next year.

The primary reasons for this slowdown are higher interest rates and a sharp downturn in homebuilding and existing home sales. The ongoing uncertainty in financial markets and the threat of a recession are causing homeowners to pare back or delay projects beyond necessary replacements and repairs. According to Carlos Martín, the Project Director of the Remodeling Futures Program at the Center, due to financial market uncertainty and the threat of a recession, homeowners are more likely to scale back or postpone projects that go beyond essential replacements and repairs.

The NAHB/Westlake Royal Remodeling Market Index, which is based on a survey of remodelers about the remodeling market, also indicates optimism in the industry. The Future Indicators Index increased two points from the previous quarter, and remodelers are generally optimistic about the home improvement market, despite some noting the negative effects of material shortages and higher interest rates. Although customers are taking on bigger projects, they tend to pay for them with cash rather than financing them.

While the home remodeling industry is expected to experience a slowdown in the first quarter of next year, there is still hope for steady growth in the long term. Homeowners are increasingly likely to delay projects, but federal incentives for energy-efficiency retrofits and a steady growth in the number of homes permitted for remodeling projects may help to counteract the predicted decline.

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