According to the LIRA (Leading Indicator of Remodeling Activity), remodeling spending is slowing even further this year. A press release from the JCHS (Joint Center for Housing Studies) bases the continued slide on a combination of factors. Among these, the slow growth in home equity and rising interest rates seem to play a chief role. Typically, when new home construction drops, remodeling goes up. In this case, the drop appears to relate to homeowners with a certain level of uncertainty. The LIRA puts the largest drop on Q4 of 2019, estimating a full 1.6% decrease (to 5.1%) over the previous quarter.
- The LIRA indicates remodeling spending to slow this year
- These numbers come from the U.S. Census, NAR, LEI, Home Price Index, and others
- Rising interest rates and stale home equity growth contribute
- Expecting a 1.6% decrease over Q3
- Remain flexible between new construction and remodeling work to compensate
What is The LIRA?
First off, the LIRA measures short-term national trends for home improvement spending. The LIRA always appears overlaid with the historical estimates for remodeling spending. Data comes from the Department of Housing and Urban Development’s biennial American Housing Survey. The report considers all types of remodeling, including home renovation and restoration. The LIRA basically factors in equity-spending on any occupied residential home. It does not count maintenance or repairs that do not add new value to a home. Rentals also do not get factored into the mix, so the number largely deals with single-family homes.
How Does the LIRA Calculate Remodeling Trends?
The LIRA determines the new numbers by correlating several different sources. Currently, the LIRA model uses eight indicators, including the following sources:
- U.S. Census Bureau’s Retail Sales at Building Materials and Supplies Dealers
- National Association of Realtors’ Existing Single-Family Home Sales
- U.S. Census Bureau’s Single-Family Housing Starts
- CoreLogic’s Home Price Index (HPI)
- National Association of Realtors’ Existing Single-Family Median Sales Price
- BuildFax’s Residential Remodeling Permits
- The Conference Board’s Leading Economic Index (LEI)
- Bureau of Economic Analysis’ Gross Domestic Product
What Does This Mean for 2019 and Beyond?
For us, the big takeaway deals with where Pros can expect to put their sales efforts. New construction may start lagging. Expect a potential pause in between that and the growth of remodeling as the industry sorts itself out. Following any significant rises in interest rates, however, remodeling should begin to pick up. When buying a new home loses its appeal, remodeling of existing homes gains appeal.
The dual drop correlation in these findings surprises us somewhat. We suspect it reflects market uncertainty—a hopefully brief period. If you work in the construction trades, keep your eyes open for opportunities to adjust your business. When remodeling opens up you want yourself prepared to shift directions. This keeps you and your team employed regardless of which way the industry and markets turn.