Big-ticket remodeling spending increased 7.5% year-over-year (YOY) in the second quarter of 2020 and 1.7% from the first quarter, according to the latest Residential Remodeling Index (RRI) released by Metrostudy/Zonda. In the second quarter, the RRI increased to a new high of 128.8, indicating economic conditions known to impact remodeling are 28.8% higher than the old peak in 2007.
The positive growth of the RRI marks the 33rd consecutive quarter of annual and quarterly gains for the index since national remodeling activity bottomed in 2011. Metrostudy/Zonda predicts the streak of annual and quarterly growth will come to an end in 2020 due to the impact of the coronavirus (COVID-19) pandemic. Based on the latest forecast from Moody’s Analytics for the economic and housing variables that are input into the RRI model, Metrostudy/Zonda projects remodeling activity will see quarterly decreases beginning in the fourth quarter of 2020, with YOY decreases beginning in the second quarter of 2021.
Metrostudy/Zonda projects the RRI will see an annual increase of 6.3% for the full year in 2020, but will see an annual decline of 1.2% in 2021. GDP, existing home sales and an unfavorable outlook for employment are expected to contribute to the decrease in remodeling activity in 2021, according to Metrostudy/Zonda.
Remodeling activity remained steady during the spring months despite concerns over COVID-19. Leisure and hospitality sector workers have borne the brunt of pandemic-related job losses, but workers and homeowners in other sectors who remained employed have continued to undergo remodeling projects while sheltering-in-place. In particular, homeowners working from home have become more attuned to imperfections in their home and engaged in retrofitting home offices.
Within the housing sector specifically, existing home sales increased on a month-to-month basis between May and June after three months of sharp declines early in the pandemic. Despite the recovery in June, existing home sales were still down 11.3% when compared to June 2019. Existing home sales could be more robust were it not facing an acute lack of supply, especially in lower price ranges. Shrinking supply portends lower home sales in the future, according to Metrostudy/Zonda. Lower home sales will also impact future remodeling activity, as new homeowners spend about 30% more on upgrades for their home purchases than longtime homeowners.
Metrostudy/Zonda projects the number of big-ticket, pro-worthy remodeling projects—worth $1,000 or more—completed in 2020 will total 13.9 million, a 6.3% increase from 2019. Big-ticket exterior, basement, and flooring projects are expected to experience the largest increases in 2020 compared to the previous year while big-ticket addition, siding, and window projects will have the smallest YOY increases. Metrostudy/Zonda forecasts the number of big-ticket projects completed will decrease to 13.7 million in 2021.
According to Metrostudy/Zonda, 381 metropolitan statistical areas are expected to see growth in annual project volume in 2020 and, among those markets, the average growth rate is expected to be 5.7%.
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.
