Strong Economy Supports Remodeling Amid Slow Housing Turnover, RRI Finds
The index posts year-over-year increase, but more moderate growth forecast over the next two years.
Big-ticket residential remodeling activity nationwide in the first quarter of 2019 rose 4.1% year over year (YOY), Metrostudy announced in its release of the latest Residential Remodeling Index (RRI). The index reached a new high of 117.5 in the first quarter, a 0.7% increase from the fourth quarter of 2018.
The RRI value means economic conditions known to influence remodeling activity are 17.5% better than the old peak in early 2007, just before the Great Recession. The positive growth in the RRI marks the 28th consecutive quarter of YOY growth for the index.
While the latest RRI forecast projects continued growth in the RRI over the next several years, growth in 2019, 2020, and 2021 is expected to be at slower rates compared with the past several years of the index. The index is expected to average YOY gains of 3.2% in 2019, 2.3% in 2020, and 3.2% in 2021. The moderate gains will be closely tied to lower housing turnover via the slowdown in existing home sales, according to Metrostudy.
“The healthy economy continues to drive the U.S. home improvement market. While wage growth has not been strong enough to boost inflation, it is ample to support economic growth as the stimulus from last year’s tax cut wanes,” said Mark Boud, chief economist at Metrostudy.
Boud says improved affordability from lower mortgage rates and slowing prices could revive existing home sales in the future and boost remodeling’s forecast from the more moderate current projections.
The RRI is based on a statistical model that takes into account data such as household-level remodeling permits, employment statistics, and a market’s economic health. It uses that model to predict the number and dollar volume of home improvement and replacement projects worth at least $1,000 in 381 metropolitan statistical areas and nationwide.
Metrostudy projects the number of remodeling projects worth $1,000 or more will rise to 12.9 million, a 3.2% increase YOY. Big-ticket exterior projects and basement projects are expected to have the biggest increases from 2019, while big-ticket pool projects, siding projects, and addition projects will have the smallest YOY increases. The inflation-adjusted value of big-ticket remodeling projects in 2019 is predicted to increase by 4.8% to $203.7 billion.
According to Metrostudy, all but one metro area—Bismark, N.D.—will see growth in 2019 and these markets will experience an average growth rate of 3.1%.