Harvard Expects Remodeling Spending Increases to Slow Through 2023
Home improvement spending will continue a steady downturn in year-over-year increases through the fourth quarter of 2023, according to the latest data from Harvard’s Leading Indicator of Remodeling Activity (LIRA). Remodelers report hope for steady project growth as spending moves from dramatic year-over-year increases into a leveled rate.
The fourth quarter prediction comes as the housing market continues its slowdown from its nearly two-year frenzy amid rising mortgage rates and increased remodeling and building costs.
The Joint Center for Housing Studies of Harvard University (JCHS) predicts year-over-year home remodeling and repair spending to grow 6.5% in the fourth quarter of 2023. For comparison, JCHS’s prediction for the fourth quarter of 2022 is 16.1%.
“Housing and remodeling markets are undoubtedly slowing from the exceptionally high and unsustainable growth rates that followed in the wake of the pandemic-induced recession,” said Carlos Martín, project director of the Remodeling Futures Program at JCHS. “Spending for home improvements will continue to face headwinds from declining home sales, rising interest rates, and the increasing costs of contractor labor and building materials.”
Survey Finds Remodelers Expect More Projects in 2023
Remodelers across the country have reported early signs of consumer pullback, noting a return closer to pre-pandemic levels yet still high, and a recent Lowe’s study found that 86% of surveyed construction professionals identified inflation as a top challenge in 2022. Two-thirds of those believe the issue will remain for the long term.
Still, despite the dramatic drop in growth predicted for remodeling spending, 73% of professionals surveyed by Lowe’s expect more work in 2023 than in 2022.
This hope could be buoyed by the fact that many homeowners will remain in their homes rather than buy new to insure those locked in lower mortgage rates, pushing the desire for remodeling. Abbe Will, associate project director of the Remodeling Futures Program, notes the Inflation Reduction Act may also push remodeling spending.
“Although remodeling market gains are expected to cool significantly next year, homeowners still have record levels of home equity to support financing of renovations,” said Will. “Energy-efficiency retrofits incentivized by the Inflation Reduction Act of 2022, as well as disaster repairs and mitigation projects following Hurricane Ian will further support expansion of the home remodeling market to almost $450 billion in 2023.”
While the 6.5% year-over-year increase in spending remains significantly lower than the two most recent fourth quarters, it maintains a higher level than most predictions from 2015 through 2021, according to historical LIRA data.
