Home remodeling remains strong
throughout the country although it has begun to experience some of the
moderation that has been predicted since late last year. The Remodeling Futures Program at the Joint
Center for Housing Studies of Harvard University said its LIRA (Leading
Indicator of Remodeling Activity) continues to show solid growth in the market
this year but momentum should begin to moderate in the fourth quarter.
According to the Joint Center, "Sluggishness
in the housing market and specifically in home sales may result in a
deceleration of home improvement spending from double-digit annual growth
through the third quarter to a year-over-year gain in the high single digits by
the end of the year."
The LIRA is a moving average designed to
estimate national homeowner spending on improvements for the current quarter
and subsequent three quarters. The indicator, measured as an annual
rate-of-change of its components, provides a short-term outlook of homeowner
remodeling activity and is intended to help identify future turning points in
the business cycle of the home improvement industry.
This is the second consecutive quarter
that the duration of the recovery anticipated by the LIRA has been
extended. The model released in October 2013 anticipated
a slowdown beginning in the second quarter of 2014. That was extended to the third quarter in the
January although the rate of that growth was downgraded from October estimates. The Center now projects that growth in the
moving average will continue into the third quarter, increasing 6 basis points
to 14.5 percent. It will then slow in
the fourth quarter, with spending decreasing from $158.9 billion to $153.1
billion, a decrease of 5.8 percentage points.
"Home improvement spending has already recovered a significant share of its
losses from the downturn," says Kermit Baker, director of the Remodeling
Futures Program at the Joint Center. "As spending moves into the next phase,
we expect to see recent double-digit growth tail off to its longer-term average
in the mid-single-digit range."
The Center also announced that, because
of the upheaval in financial markets over recent years, it has found the
traditional relationship between interest rates and home improvement spending
has significantly deteriorated. As a
consequence, starting this quarter long-term rates have been removed from the
LIRA estimation model.