Joint Center for Housing Studies of Harvard University

Fallout from the coronavirus (COVID-19) pandemic is expected to cause owner expenditures for home renovations and repairs to decline at least through the first quarter of 2021, according to the latest Leading Indicator of Remodeling Activity (LIRA) released by the Remodeling Futures Program at the Joint Center for Housing Studies (JCHS) of Harvard University. Before the pandemic, the LIRA projected a healthy rebound in home remodeling spending and annual growth of 3.9% by the first quarter of 2021. However, data incorporating actual and projected impacts of the economic shutdown point to spending declines through 2020, with worsened spending declines in 2021.

“While there is still considerable uncertainty surrounding the near- and longer-term impacts of the pandemic, the best available evidence suggests substantial downturns in key remodeling indicators of new home construction, home sales and values of existing homes over the coming quarters,” Chris Herbert, managing director of the JCHS, said in a news release. “Homeowners who are concerned about losses of income, home equity, and other forms of wealth are anxious about making large investments in improving their homes in this economic environment.”

Due to the changes in the U.S. economy since mid-March, the first quarter LIRA includes a downside range for the home remodeling outlook. The downside range incorporates forecasts for several core model inputs, including retail sales of building materials, home prices, and GDP. Using the downside range, quarterly spending for improvements and repairs to owner-occupied housing is projected to turn negative by the third quarter of this year, with annual expenditures projected to fall to $322 billion by early 2021. The LIRA including the downside range projects year-over-year growth for remodeling will increase by only 1.9% in the second quarter of 2020, and by less than 1.0% in both the third and fourth quarters of the year. Associate project director Abbe Will said there is potential for even more severe declines in remodeling spending to occur later in 2021.

“Beyond the start of next year, remodeling activity that would typically result from expanding home building, sales of existing homes, and home prices mean the greatest downturn could come later in 2021 with recovery depending on what occurs in housing markets over the remainder of this year," Will said.

LIRA provides a short-term outlook of national home improvement and repair spending to owner-occupied homes. The indicator, which is measured as an annual rate-of-change of its components, is designed to project the annual rate of change in spending for the current quarter and the following four quarters. LIRA is intended to help identify future turning points in the business cycle of the home improvement and repair industry. The indicator was re-benchmarked in April 2016 to a broader market measure based on the American Housing Survey. The next quarterly report will be released in mid-April 2020.