Big-ticket remodeling spending increased 2.5% year over year (YOY) in the fourth quarter of 2019 and 0.5% from the third quarter, Metrostudy/Zonda announced in its release of the latest Residential Remodeling Index (RRI). The index rose to a new high of 119.6, indicating economic conditions known to influence remodeling activity are 19.6% higher than the old peak in 2007.
Growth in the RRI marks the the 31st consecutive quarter of YOY gains since national remodeling bottomed in 2011. Despite the increase, YOY growth is coming at an increasingly moderate pace compared with the nearly 5% growth the industry averaged between 2016 and 2018. Big-ticket remodeling activity growth averaged 3.1% YOY growth in 2019, including annual growth of 2.5% for the final two quarters of 2019.
Metrostudy/Zonda expects remodeling activity to continue to expand over the next few years, but forecasts growth to remain moderate as the economic cycle eventually wanes and low housing turnover takes some potential off the table. The RRI is projected to average YOY gains of 2.6% in both 2020 and 2021, before firming to an average of 3% in 2022.
“The remodeling industry continues to ride the strength of the economy, but the tight housing market and high cost of labor has caused slower renovation growth compared to years past, as some of the activity that is initiated in the wake of new homeownership has been limited," Metrostudy/Zonda chief economist Mark Boud said in a public statement. "In December, the inventory of existing homes in the U.S. dropped to a 3.0-month supply, the lowest since the National Association of Realtors began tracking that data in 1999."
Boud said the shortage of existing homes for sale is made worse by low levels of new home construction, a trend expected to continue over the next several years as builders are forecast to encounter difficulty delivering homes in lower price ranges. Boud said as more Americans choose to stay put in the tight housing market, they will upgrade their current homes, an offset that will continue to benefit remodeling in the near future.
Metrostudy/Zonda projects the number of remodeling projects worth $1,000 or more will total 13.3 million in 2020, an increase of nearly 350,000, or 2.67%, compared to 2019. Big-ticket flooring, exterior, and basement projects are expected to experience the largest increases in 2020 compared to the previous year, while big-ticket pool, siding, and addition projects will have the smallest YOY increases. The inflation-adjusted value of big-ticket remodeling projects is forecast to increase 4.21% YOY to $212.2 billion in 2020.
According to Metrostudy/Zonda, 94.2% of analyzed metropolitan statistical areas are expected to see growth in 2020 project volume, and among these markets, the average growth rate is expected to be 3.2%. Major metros in Florida (including Tampa-St. Petersburg-Clearwater, Orlando-Kissimmee-Sanford, Miami-Fort Lauderdale-West Palm Beach, and Jacksonville), Colorado (including Boulder and Denver-Aurora-Lakewood), Texas (Houston-The Woodlands-Sugar Land), and Nevada (Las Vegas-Henderson-Paradise) are among the MSAs not projected to see growth in project volume in 2020.
The RRI is a 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.
