The first half of 2023 will bring a slowdown in the growth of remodeling demand, according to data released today by the Joint Center for Housing Studies of Harvard University (JCHS).
The growth in homeowner improvement activity, specifically remodels, replacements, additions, repairs, and routine maintenance, is predicted to drop from this quarter’s 17.3% to 10.1% in the second quarter of 2023, according to JCHS’ Leading Indicator of Remodeling Activity (LIRA).
Existing home sales, rising mortgage rates, and accelerating home price appreciation were the top reasons for the decline in remodeling interest, according to JCHS’ Carlos Martín.
“Steep slowdowns in homebuilding, retail sales of building materials, and renovation permits all also point to a cooling environment for residential remodeling,” Martín, project director of the Remodeling Futures Program at JCHS, added.
For the week ending July 14, 30-year mortgage rates reached 5.51%, according to Redfin. And the company’s Redfin Homebuyer Demand Index noted an 18% year-over-year drop in demand for the week ending July 10. Today’s record-breaking lumber prices add $14,345 to the price of a new single-family home, according to the National Association of Home Builders. And new construction has taken a slight hit in June, according to the U.S. Census Bureau and U.S. Department of Housing and Urban Development: Single-family permits were 8% lower than May and starts dropped 8.1%. Compared to June 2021, starts dropped 6.3%.
Still, even with that dramatic drop, demand remains historically high. From late 2017 through the end of 2021, remodeling growth activity has not broken through 10%, according to past LIRA datasets. If predicted correctly, the fourth quarter of 2023 will see $446 billion in home improvement expenditures. To put it in perspective, expenditures for the second quarter of this year reached $405 billion.
“While beginning to soften, growth in spending for home improvements and repairs is expected to remain well above the market’s historical average of 5%,” says Abbe Will, associate project director of the Remodeling Futures Program. “In the first half of 2023, annual remodeling expenditures are still set to expand to nearly $450 billion.”
This prediction comes as an increased number of Americans report higher stress levels due to the economic climate. A survey published last month found that 75% of homeowners reported high-stress levels regarding decisions related to their homes due to inflation, interest rates, job security, and contractor availability.