Monday, April 18, 2016

Greater Coverage of Flourishing Home Improvement & Repair Market Reflected in Center’s Re-Benchmarked Leading Indicator of Remodeling Activity

Abbe Will
Research Analyst

On Thursday, April 21, the Joint Center will release a newly re-benchmarked leading indicator that projects short-term trends in the broader home improvement and repair market. This re-benchmarking and recalculation of the Center’s Leading Indicator of Remodeling Activity (LIRA*) provides three major enhancements over the former LIRA that the Center has produced since 2007:
  • More accurate reflection of the true size of the home remodeling market: The re-benchmarking provided an opportunity to better align the LIRA reference series with a more comprehensive remodeling market size that now includes maintenance and repair spending to owner-occupied homes, in addition to improvement spending—at present a nearly $300 billion market for homeowner spending alone.
  • Updated drivers of home improvement and repair activity as industry emerges from the Great Recession: The housing and home improvement markets have gone through possibly the most severe cycles in their recorded histories since the LIRA was first released, necessitating a review of the original LIRA model and inputs for accuracy.
  • Better reflection of historical spending patterns by homeowners: A major motivation for this re-benchmarking has been the declining quality and reliability of the LIRA’s former benchmark data series, which has been subject to unusually large revisions to its cyclical trend in recent years (see previous blog post on this topic). 

The regularly scheduled release of the LIRA later this week will also include a Research Note* describing the re-benchmarking motivations and methodology and revisions to the LIRA model inputs in detail. Moving forward, the LIRA will be benchmarked to a measure of home improvement and repair spending based on estimates from the Department of Housing and Urban Development’s biennial American Housing Survey. Including home maintenance and repair activity results in a somewhat less cyclical LIRA than previously, but ultimately the re-benchmarked LIRA still anticipates turning points in the market well (Figure 1).

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Notes: The most recent data available from the American Housing Survey is 2013. LIRA data only include historical estimates produced by the model. Regular quarterly LIRA releases will project with a time horizon of four quarters.
Source: Joint Center for Housing Studies

Major enhancements to the LIRA model inputs include measures of house prices and residential remodeling permits that together with traditional inputs, such as retail sales of building materials and home construction and sales, are expected to better predict post-Great Recession market trends for the remodeling industry (Figure 2).

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The re-benchmarked LIRA, measured as an annual rate-of-change of its component inputs, provides a short-term outlook of national homeowner improvement and repair activity for the current quarter and subsequent four quarters, and is intended to help identify future turning points in the business cycle of the home remodeling industry. The LIRA is released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University in the third week after each quarter’s closing. The release of the First Quarter 2016 Leading Indicator of Remodeling Activity is set for 9:00 AM ET on Thursday, April 21. 

*Note - links will be updated Thursday with the release and publication of the research note

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