The Harvard Joint Center for Housing Studies is predicting strong gains in remodeling and home improvement activity over the rest of 2012 and the first half of next year.  The Center's Leading Indicator of Remodeling Activity (LIRA) suggests that the seeds of a recovery in the remodeling industry have been planted and there could be double digit growth in home improvement spending over the next eight months.

LIRA is designed to estimate home improvement spending for the current quarter and the following three quarters using the Department of Commerce's Value of Construction Put in Places series or C-30 to project the value of residential improvements.  This annual or moving four-quarter rate of change compares total spending in any given four-quarter period to the total spending that occurred in the four quarters prior to that period.  

The LIRA projections can be found in the line graph for the last four quarters of the chart. Since the LIRA is designed as a forward-looking indicator, all of the historical data in the chart comes directly from estimates of improvement spending in the C-30 series.

Commerce defines home improvements as remodeling, additions, and major replacements to owner-occupied properties after the completion of the original building.  This definition include additions to existing buildings, finishing basements and attics, improvements to the exterior building or lot, and replacement of major systems and equipment such as furnaces or water heaters.  It does not include spending for painting, landscaping, or routine maintenance.

"After a bump in home improvement activity during the mild winter, there was a bit of a pause this summer," says Eric S. Belsky, managing director of the Joint Center.  "However, the LIRA is projecting an acceleration in market activity beginning this quarter, and strengthening as we move into the new year.

"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," says Kermit Baker, director of the Remodeling Futures Program at the Joint Center.  "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."