Zonda’s Residential Remodeling Index (RRI) posted a record-high reading of 151.3 in the fourth quarter of 2021, a 9.7% gain from the fourth quarter of 2020. According to the RRI, fourth quarter big-ticket remodeling spending increased 0.9% compared to the third quarter of 2021.
The latest RRI reading indicates current remodeling activity is 51% higher than the old peak of 2007. The growth during the fourth quarter of 2021 marks the 39th consecutive quarters of growth since remodeling activity bottomed in 2011. Zonda said the RRI average growth of 12.9% for the full year in 2021, the strongest annual increase in the index’s history dating back to 2004.
In addition to record growth, the RRI’s short-term forecast has firmed due to a strengthening in the economic variables included in the RRI model, particularly GDP and employment. Zonda forecasts the RRI to see annual growth of 2.8% in 2022 and continued steady increases of 2.2% and 2.4% in 2023 and 2024, respectively.
According to Zonda, continued economic growth is expected to bolster consumer demand for home improvements, while activity in the housing market is expected to see some level of normalization during 2022. While strong existing home sales and record levels of home equity have driven the RRI, the housing market frenzy is expected to subside in 2022 as interest rates rise. After existing home sales reached a 15-year high of 6.12 million units in 2021, the National Association of Realtors forecasts sales will decrease to 5.95 million units in 2022. Price moderation in the existing home market is also expected to moderate from 16.9% in 2021 to 5.1% in 2022. Despite expected moderation, forecasts for the housing market in 2022 suggest underlying buyer demand will remain intact as supply normalizes.
While the RRI model predicts economic and housing conditions will allow for remodeling activity to continue to expand, challenges and uncertainties remain—namely, inflation. Inflation reached 7.5% on an annual basis in January, the highest level in four decades, and how aggressively the Federal Reserve will respond with interest rate hikes in 2022 could have a range of effects on the overall economy.
The RRI estimates the number of pro-worthy remodeling projects worth $1,000 or more completed in 2021 was 15.9 million. Zonda forecasts the number will increase to 16.4 million in 2022 and increase again to 16.8 million in 2023.
As part of the RRI estimation, Zonda predicts that 366 or 384 observed metropolitan statistical areas will see growth in annual project volume in 2022. Among the markets expected to see growth, the average growth rate is predicted to be 4.1%.
The RRI is based on a statistical model that takes into account data such as household level remodeling permits and consumer-reported remodeling and replacement projects. It uses a model to predict the number and dollar volume of home improvement and replacement projects nationwide worth at least $1,000 in 381 metropolitan statistical areas and nationwide.
