LIRA and the RMI are both indicating strong gains in the home improvement sector through the end of the year.

An improving housing market and record low interest rates are driving projections of strong gains in home improvement activity through the end of the year and into the first half of 2013, according to the Leading Indicator of Remodeling Activity recently released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. The LIRA suggests that the seeds for what appears to be a very robust remodeling recovery have been planted, with annual homeowner improvement spending expected to reach double-digit growth in the first half of 2013.

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

Kermit Baker, director of the Remodeling Futures Program at the JCHS, said, “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. 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.”

The Leading Indicator of Remodeling Activity is 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.

The Remodeling Futures Program, initiated by the Joint Center for Housing Studies in 1995, is a comprehensive study of the factors influencing the growth and changing characteristics of housing renovation and repair activity in the United States. The program seeks to produce a better understanding of the home improvement industry and its relationship to the broader residential construction industry.


Source: Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University

Remodeling Market Index returns to 2005 levels

In other news, the Remodeling Market Index (RMI) climbed to 50 in the third quarter of 2012, up from 45 in the previous quarter, according to the National Association of Home Builders (NAHB). Released today, the RMI is at its highest point since the third quarter of 2005, tracking the positive trends recently seen in the rest of the housing sector.  

The RMI component measuring current market conditions rose to 52 from 46 in the previous quarter, while the component measuring future indicators increased to 49 from 44. An RMI above 50 indicates that more remodelers report market activity is higher (compared to the prior quarter) than report it is lower. The overall RMI averages ratings of current remodeling activity with indicators of future activity.   

"The strength of the RMI, especially in owner-occupied properties, shows that home owners are investing in remodels as home prices stabilize," said NAHB Remodelers Chairman George "Geep" Moore Jr., GMB, CAPS, GMR, a remodeler from Elm Grove, La. "As owners become more confident that investments in housing will hold their value, they are beginning to undertake projects to improve their comfort that they had been putting off."  

All three indicators of current market conditions improved: maintenance and repairs rose to 56 (from 50), minor additions and alterations to 51 (from 47) and major additions and alterations to 49 (from 42). Current market conditions improved or held steady in all four regions in the third quarter of 2012. Current remodeling activity was particularly strong in owner-occupied housing; the sub-components of the current conditions index for owner-occupied housing were all well over 50, ranging between 55 and 60.  

Future market indicators in every region but the Northeast experienced gains from the previous quarter: Northeast, 38 (from 41); Midwest, 50 (from 46); South, 52 (from 46); and West, 52 (from 42). All indicators of future market conditions rose: calls for bids, 48 (from 44); amount of work committed for next three months, 46 (from 43); backlog of remodeling jobs, 50 (from 46); and appointments for proposals, 51 (from 43).  

"The improvement in the RMI provides more evidence that the remodeling industry is making the orderly recovery from its low point in 2009 as we've been expecting," said NAHB Chief Economist David Crowe. "Although remodeling projects over $25,000 are now showing some signs of strength, they are still lagging behind smaller property alterations and maintenance and repair jobs. The recovery of the remodeling market in general, and large projects in particular, continues to be constrained by factors such as tight credit and problematic appraisals."  


Source: NAHB

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