Remodeling indicators at odds with each other
Two closely watched indicators of remodeling activity came out recently with contradictory assessments of the business.
On one hand, the latest Leading Indicator of Remodeling Activity, released Thursday morning by the Joint Center for Housing Studies, points to a decline in annual homeowner renovation and maintenance spending.
On the other hand, remodeler confidence ticked upward according to the latest National Association of Home Builders/Westlake Royal Remodeling Market Index (RMI).
LIRA forecasts remodeling activity will worsen through the third quarter of this year before moderating slightly to a drop of 6.5% by the end of 2024.
“Home remodeling will continue to suffer this year from a perfect storm of high prices, elevated interest rates, and weak home sales,” Carlos Martín, project director of the Remodeling Futures Program at the Center, said in a statement issued by the JCHS. “These headwinds create considerable uncertainty in the economy, and remodeling spending is projected to fall from $481 billion last year to $450 billion in 2024.”
LIRA provides a short-term outlook of national home improvement and repair spending to owner-occupied homes. Click here for the full study.
“Even with the anticipated downturn, spending for improvements and repairs to owner-occupied homes this year is expected to easily surpass the robust levels seen early in the pandemic,” said Abbe Will, associate project director of the Remodeling Futures Program. “Recent improvements in homebuilding and mortgage rates also support the prospect of turning a corner on the rate of remodeling spending losses by the end of the year.”
Brighter forecast
The NAHB reported this morning that the RMI increased two points to a reading of 67 from the previous quarter.
“Remodelers’ sentiment was quite positive at the end of 2023, when seasonally adjusted for the slowdown that invariably occurs during that part of the year,” said NAHB Remodelers Chair Alan Archuleta, a remodeler from Morristown, N.J. “High costs remain an issue in some places, but in many markets, customers seem to have adjusted to the unavoidable higher prices.”
The Current Conditions Index averaged 74, increasing two points compared to the previous quarter. All three components improved in the fourth quarter: the component measuring large remodeling projects ($50,000 or more) increased three points to 70, the component measuring moderate remodeling projects (at least $20,000 but less than $50,000) rose two points to 75, and the component measuring small-sized remodeling projects (under $20,000) increased two points to 78.
The Current Conditions Index is an average of three components: the current market for large remodeling projects, moderately-sized projects and small projects. The Future Indicators Index is an average of two components: the current rate at which leads and inquiries are coming in and the current backlog of remodeling projects. The overall RMI is calculated by averaging the Current Conditions Index and the Future Indicators Index. Any number over 50 indicates that more remodelers view remodeling market conditions as good than poor.
The Future Indicators Index increased two points to 59 compared to the previous quarter. The component measuring the current rate at which leads and inquiries are coming in remained even at 56, and the component measuring the backlog of remodeling jobs rose three points to 62.
“The seasonally adjusted RMI edged up on a quarterly basis at the end of 2023, although it was down slightly year-over-year,” said NAHB Chief Economist Robert Dietz. “Nevertheless, the index remains solidly in positive territory as it has been ever since the second quarter of 2020. Looking forward, we expect market conditions to improve throughout 2024, as interest rates continue to decline.”
This report from the NAHB appears to be in contradiction to the latest Leading Indicator of Remodeling Activity (LIRA) released today by the Joint Center for Housing Studies (JCHS), which indicates remodeling activity and spending will worsen in 2024.
The NAHB/Westlake Royal RMI survey asks remodelers to rate five components of the remodeling market as "good," "fair" or "poor." Each question is measured on a scale from 0 to 100, where an index number above 50 indicates that a higher share view conditions as good than poor.
For the full RMI tables, please visit nahb.org/rmi.
