Remodeling activity to ease, then dip in 2020
Wednesday, September 18, 2019
Contrary to earlier forecasts, demand for residential remodeling services increased during the second quarter of 2019. Industry experts have adjusted their growth projections for the year upward.
At the same time, however, they now foresee a steeper decline in growth for the year ahead.
Economic and demographic trends helped keep remodelers busy during the first half of the year. High employment, increased household incomes, rising home prices and declining interest rates, combined with a shortage of homes for sale, have prompted owners to make improvements to their current home and new buyers to upgrade a less-than-ideal but more affordable home.
In addition, changes to household composition as longtime owners age-in-place and more millennials become renters and owners have prompted a wave of renovations and remodels.
Metrostudy reports its Residential Remodeling Index (RRI) reached a new high in the second quarter of 2019. For the second time in a row, the RRI was up 0.7% from the previous quarter, and it marked a 3.4% gain over the same period last year.
Looking ahead, Mark Boud, chief economist at Metrostudy, noted that continued weak home sales and construction rates were expected to continue into 2020, resulting in “some loss of remodeling activity.”
Metrostudy projects that overall growth will remain positive, but slower than in recent years. It still foresees a 3.2% growth rate for 2019, but has revised its earlier projection for 2020 from 2.3% down to 2.0%, and a rebound in 2021 from 3.2% down to just 2.4%.
Those projections are similar to those of the Joint Center for Housing Studies (JCHS) at Harvard University, which, in July, forecast that growth in total homeowner spending on home improvement, remodeling and repairs will shrink from 6.3 % in the third quarter of 2019 to a mere 0.4 % by the second quarter of 2020.
Along with the weak housing market, Chris Herbert, JCHS managing director, pointed to slower gains in permitting for improvement projects as contributing to “put the brakes on remodeling growth” in the coming year.
Both Boud and Herbert stated that if mortgage rates continue to fall and, consequently, home sales begin to rise, that would help to boost demand somewhat. Meanwhile, remodelers are facing their own set of challenges as tariffs are causing the cost of some goods and materials to rise and shortages of skilled labor create schedule delays and higher labor costs.
Also, concern about finances, including a possible recession, is causing some homeowners to postpone or scale back projects they had planned for this year. All of which adds up to a sobering scenario for remodelers as they begin their business planning for next year.
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