We're Finally Building More Small Homes, but Construction Remains at Historically Low Levels

by Alexander Hermann
Research Assistant

Census data released last month show that after years of stagnation, construction of smaller homes grew appreciably in 2016. New completions for homes under 1,800 square feet increased nearly 20 percent in 2016 to 163,000 units, the first significant growth since 2004 and the largest rise since the data series began in 1999.

This growth is significant because many first-time and lower-income homebuyers hope to purchase smaller homes, which are generally less expensive than larger ones. Moreover, historically-low levels of home construction over the last decade have led to declining inventories, decreasing vacancy rates, and increasing prices, as discussed in our latest State of the Nation's Housing report (Figure 1).

Even with the uptick in 2016, though, small-home construction remains 65 percent below the 464,000 units completed annually between 1999 and 2006, and comprises a much smaller share of newly-built housing than in the past. In 2016, small homes were 22 percent of single-family completions, well below their 37 percent market-share in 1999. In contrast, the share of large homes built grew from 17 percent in 1999 to 30 percent in 2016, while moderately-sized homes, which have consistently been the largest share of the market, have annually been 43-to-48 percent of all new single-family homes.

Construction of condos and townhouses, possible alternatives to smaller single-family housing, also remains low. Builders of multifamily properties continue to focus on the rental market where demand remains strong. Consequently, only 28,000 condos were started in 2016, a modest increase from the 26,000 starts in 2015 but much lower than the 53,000 starts averaged annually in the 1990s (Figure 2). Similarly, townhouse starts grew from 86,000 units in 2015 to 98,000 units in 2016. While this is more than double the number of starts from 2009 and comparable to the 95,000 units started annually in the 1990s, it is less than half the number started in 2005.

The low levels of new construction have resulted in historically-low housing inventories, especially entry-level housing. According to data from CoreLogic, the supply of modestly-priced homes – those selling for 75-to-100 percent of the area's median list price – was below three months at the end of 2016, about half of the six months that generally represents a balanced market (Figure 3). Indeed, according to data compiled by Zillow, only a quarter of the homes for sale at the end of last year were in the bottom one-third of area homes by price, while half were in the top one-third.



Increased demand for entry-level housing and the corresponding uptick in smaller housing construction have already contributed to the growing number of first-time homebuyers in 2016. According to the National Association of Realtors, first-time homebuyers comprised 35 percent of home sales in 2016, up from 32 percent in 2015 but still below long-term historical rates, which are close to 40 percent of all buyers. Looking forward, increases in the supply of smaller homes, townhouses, and possibly condos could help address the growing demand for lower priced homes for first-time and low-income homebuyers.

What Can We Learn from Attempts to Reduce the Cost of Affordable Housing?

by Sam LaTronica
Gramlich Fellow

Midwestern CDCs trying to build affordable homes that do not require development subsidies have identified three potentially promising strategies: building smaller homes, utilizing factory-built homes, and creatively designing houses to get more out of them. In a new working paper that grows out my work as an Edward M. Gramlich Fellow in Community and Economic Development I conclude that while each technique presents opportunities for cost savings, each also comes with its own set of challenges.

The fellowship, which is co-sponsored by the Joint Center for Housing Studies and NeighborWorks^® America, also expanded my horizons because for years, my conception of new “affordable housing” had been limited to the standard multifamily properties developed in larger urban areas. This was the type of affordable housing I had seen since moving to the Boston area, as well as working for an affordable advocacy organization in the San Francisco Bay Area prior to attending the Harvard Graduate School of Design.

As a Gramlich Fellow in the summer of 2015, I was exposed to a new region and new approach to affordable housing. The Midwestern CDCs, which were part of NeighborWorks^® America’s national network, often had in-house general contractors and focused on building and selling affordable single-family homes, in both urban and rural areas. Given the dearth of housing subsidies, particularly subsidies for affordable housing in rural areas, these CDCs were trying to find cost-saving construction techniques that would allow them to build affordable housing without development subsidies.

The Rambler, a single-family home constructed by the Southwest Minnesota Housing Partnership. The home is 1,092 square feet on the main floor with another 1,092 square feet of unfinished basement space that can be converted into living space or more bedrooms at a later date. This home was constructed in 2014 with an asking price of $153,900.

Through reading popular literature on home construction, analyzing building trends, conducting interviews with CDC leaders, and visiting new developments in the Midwest, it became clear that CDCs were interested in pursuing three potential cost saving techniques: building smaller homes, using factory-built homes, and creatively designing houses to get more out of them.

Smaller homes are theoretically cheaper to build because they simply require fewer materials and less construction time. Once occupied, these houses not only can be cheaper to heat or cool but also will cost less to maintain. Smaller footprints also make it possible to build these homes on smaller or irregularly shaped lots, which helps expand the options for CDCs.

However, cost savings are not always realized when buildings are smaller. Once land and other development costs are factored in, it is possible that building smaller homes will be only slightly cheaper than building larger homes on the same lot. Moreover, the marginal cost of constructing a few hundred more square feet might allow the CDC to sell the house for more money while still keeping it affordable. Some CDC leaders also worry that producing affordable homes that are much smaller than new market-rate homes would create obvious distinctions between income levels and stigmatize the people living in the new, smaller homes. Finally, while building smaller can be smart for a number of reasons, most people still want bigger homes as evidenced by the fact that average house sizes have been increasing and have recently surpassed pre-recession levels. This suggests that without a shift in the overall market, smaller homes may not be a particularly appealing option for CDCs trying to build affordable housing.

While factory-built construction techniques are not necessarily new, they are new to many CDCs. Many Midwestern CDCs are currently experimenting with (or exploring the possibility of using) both modular homes and homes made from structural insulated panels (SIPs). Factory-built homes have the benefit of being produced mostly indoors and using assembly line techniques, which can significantly reduce onsite construction time and protect against weather delays, theft, vandalism, etc. Moreover, homes built in factory-controlled settings can be tighter and more energy efficient and make more efficient usage of building materials (which should reduce their cost).

Like building smaller, however, the cost savings that are touted in popular literature are harder to realize in practice. If CDCs, architects, contractors, and subcontractors do not have enough experience working with factory-built housing, then the development process can hit major roadblocks that negate the hypothetical cost savings that would result from a shorter construction period and lower production costs. In fact, some CDCs that experimented with these techniques ended up with homes that cost far more than they would have cost using traditional stick-built techniques.

Finally, creatively designing houses can supplement the previous construction types to get the most out of new homes. This can come in many forms. Designing attached accessory dwelling units will add more units to the housing stock and can supplement the primary tenant’s income.  Co-housing development can utilize scale and reduce the per-owner development costs. Open floor plans can make smaller homes more palatable and unfinished buildouts can reduce costs while allowing families to later customize their home to meet their particular needs.

In the end, there is no silver bullet that can be used to build affordable single-family homes without a development subsidy. However, there are many techniques that, when combined, could produce significant cost savings. CDC leaders interested in pursuing these approaches should remember that the benefits of these techniques, as described in popular literature, do not always materialize in practice. Therefore, CDC leaders should learn from others who have already experimented with them. They should also establish strong relationships with architects and contractors who have experience with these techniques, so that they reduce the likelihood of delays that would drive up costs. Hopefully, by persevering and learning from others, the CDCs can increase the production of affordable homes.

Sam LaTronica, who graduated from the Harvard Graduate School of Design in 2016, was a 2015 recipient of the TheEdward M. Gramlich Fellowship in Community and Economic Development, which is co-sponsored by NeighborWorks®America and the Joint Center for Housing Studies.

When Do Renters Behave Like Homeowners? High Rent, Price Anxiety, and NIMBYism

by Michael Hankinson
Meyer Fellow

In theory, renters and homeowners disagree about proposals to build new housing in their communities, particularly if that housing is close to where they live. However, in practice, this is not always the case. 

Rather, in a new Joint Center working paper that is based on new national-level experimental data and city-specific behavioral data, I find that in high-housing cost cities, renters and homeowners both oppose new residential developments proposed for their neighborhoods. However, in high-cost markets renters are still more likely than homeowners to support citywide increases in the supply of housing. Since changes in city governments over the past several decades have generally strengthened the power of neighborhood-level opponents to proposed projects, my findings help explain why it is so hard to build new housing in expensive cities even when there is citywide support for that housing.

NIMBYism and the Rising Cost of Housing

Since 1970, housing prices in the nation’s most expensive metropolitan areas have dramatically increased. Real prices have doubled in New York City and Los Angeles and nearly tripled in San Francisco. Driving this appreciation is an inability of new housing supply to keep up with demand. Even accounting for the cost of materials and natural geographic constraints on supply, the dominant factor behind this decoupling of supply and demand is political regulation, such as limits on the density of new housing developments and caps on the number of permits issued by a localities’ government.

                                               

These limits are a classic example of the NIMBY (Not in My BackYard) phenomenon. Even if residents support a citywide increase in the supply of housing, they may still oppose specific projects in their neighborhood. This seeming disconnect between views on citywide and local development policies creates a classic collective action problem for those policymakers who must find ways to reconcile the conflicting views.  

Photo by Michael Hogan/Flickr

Despite its popularity as a scapegoat, there is no individual-level, empirical data on how NIMBYism operates and among whom. Students of urban politics generally assume that homeowners have strong NIMBY tendencies not only because they benefit from rising house prices but also because they worry that nearby new housing units, particularly nearby subsidized housing units, might decrease the value of their home.

There is less consensus on (or studies of) how renters view new development. New supply may help ease prices for renters but their pro-development views may not be reflected in local policies because renters are less likely to become politically involved than highly motivated homeowners.  Alternatively, renters might not favor new projects if they believe the units will increase demand in their neighborhood, which, in turn, will lead to increased housing prices. To date, however, there has been very little research on how renters view development projects and whether their views differ from those of homeowners.

                                               

Measuring NIMBYism

To measure NIMBYism and general support for new housing, I collected two unique datasets. I conducted the first experimental tests of NIMBYism through an online survey of 3,019 respondents across 655 cities in 47 states. Respondents were asked about their support for development policies, including whether they would support a 10 percent increase in their city’s housing supply, with the question customized to each respondent’s city, stating how many homes and apartments currently exist and how many more would be built. Respondents also participated in an experiment where they were presented with two housing developments and asked which of the two proposals they preferred for their city. Each proposed development was described using several attributes, such as height and affordability level. To measure NIMBYism, respondents were also told how far each the of developments would be from their home, from two miles away to ⅛ mile away. By randomly varying this distance along with the other attributes, I was able to measure respondents’ sensitivity to proximity (NIMBYism), holding all other attributes equal.

To supplement this national survey, I also conducted a 1,660-person exit poll during the 2015 San Francisco election. Voters at 26 polling locations were asked their opinions on several housing-related ballot propositions similar to those presented in the national survey.

When Renters Behave Like Homeowners

As noted, renters and homeowners are expected to disagree on support for new housing, with NIMBY homeowners opposing citywide and neighborhood development and renters likely supporting the new supply. In line with existing theory, homeowners in my national survey largely opposed the proposed 10 percent increase in their city’s housing supply (28 percent approval), while a majority of renters supported the new supply (59 percent approval). Likewise, when asked in the experiment which of two randomly generated buildings they would prefer for their city, homeowners exhibited consistent NIMBYism, preferring buildings that were farther away from their home. In contrast, renters on average did not pick buildings based on distance from their home. If anything, renters preferred affordable housing that was closer to their home, displaying a YIMBY or ‘Yes in My BackYard’ attitude. In short, homeowners and renters tend to have very different attitudes towards both NIMBYism and the citywide housing supply.

However, in high-rent cities, renters look far more like homeowners. Instead of paying little attention to the location of proposed new housing, renters in expensive cities are just as NIMBY towards market-rate housing as homeowners. Moreover, this renter opposition to nearby development does not mean they support less new development overall. In fact, renters in expensive cities show just as much support for a 10 percent increase in their city’s housing supply as renters in more affordable cities. The main difference between these groups of renters is their NIMBYism.

Results from the San Francisco exit poll show a similar combination of supporting supply citywide, but opposing it locally. When asked about a 10 percent increase in the San Francisco housing supply, both renters and homeowners expressed high levels of support, at 84 percent and 73 percent approval, respectively. But, somewhat surprisingly, when asked if they would support a ban on market-rate development in their neighborhood, renters showed far more NIMBYism than homeowners, with 62 percent of renters supporting the NIMBY ban compared to 40 percent of homeowners.

NIMBYism and How We Permit Housing

Renters in high-rent cities generally both want new housing citywide but behave like homeowners when it comes to their own neighborhood. These scale-dependent preferences present a policy challenge for keeping cities affordable. Over the past 40 years, city governments have increasingly empowered neighborhoods to weigh-in on housing proposals through formal planning institutions. In doing so, these decisions have amplified NIMBYism and the ability to reject new housing, without maintaining a counterweight for the broader interest for new supply citywide. In other words, while most residents may support new housing for the city as a whole, both homeowners and renters are willing and increasingly able to block that supply in their own neighborhood, effectively constraining the housing supply citywide. This is housing’s collective action problem.

In separate research, I am empirically testing the effect of these strengthened neighborhood institutions on the rate of housing permitting since 1980. Likewise, I am conducting further experimental research on what types of citywide housing proposals are able to win the greatest support among both homeowners and renters. Hopefully, by measuring the tradeoffs between the ‘city’ and ‘neighborhood’ in the politics of housing, we can better address the deepening affordability crisis facing many American cities.

How Does Geographic Diversity in Age Structures Impact Housing Market Dynamics?

by George Masnick
Senior Research Fellow

As the youngest of the baby boom generation has now turned 50, there is much talk about the overall aging of the U.S. population. But recently released Census Bureau population estimates for states and counties tell a more nuanced story about the diversity in age structures in the U.S.  The census release notes that the oldest county (Sumter County-FL) has a median age of 65.5, while the youngest (Madison-ID) has a median age of 23.1.  Quite a difference!  Other counties among the oldest include Charlotte-FL (57.5), Alcona-MI (56.9), Llano-TX (56.9), and Jefferson-WA (55.9).  The five youngest counties also include Radford City-VA (23.3), Chattahoochee-GA (23.9), and Harrisonburg City-VA (24.2), and Utah County-UT (24.2).  The U.S. median age is 37.6. 

We should perhaps not be surprised that the county with the oldest population is in Florida, or that Idaho and Utah, with their Mormon influences, should have the counties with the youngest populations. But what is going on in Michigan, Texas, and Washington counties to rank among the oldest, and in Georgia and Virginia to produce places with the youngest populations?

There are three main demographic factors that influence the age structure of a population: 

1. Domestic migration patterns of both young adults and the elderly; 
2. Settlement patterns of international immigrants; 
3. Levels of fertility of both the immigrant and native born populations.  

Differences in life expectancy could also influence age structures if those differences are large.  For states and counties in the U.S., however, mortality differences are not sufficient to affect differences in median age. 

Places with net domestic out-migration of young adults, and/or in-migration of elderly will be older (younger if these migration patterns are reversed).  Florida is a destination state for retirement migration, as are North Carolina, Arizona, and other warm weather and low-tax states in the south and west.  Maine, West Virginia and many rust belt and Great Plains states lose young adults on net, so places in these states will also have an older age structure.

Immigrants tend to be young and have higher fertility compared to the native-born, so places that are immigrant destinations will be younger.  While states on the coasts and along our southern border still attract the majority of immigrants, states in the interior have increasingly become immigrant destinations as immigrant networks have spread beyond gateway states. 

Finally, fertility levels are the primary determinant of a population’s age structure.  When fertility is above replacement (more children born than reproductive-age adults in a family) the population pyramid is broader at the base, and median age is lower. The pyramid becomes more mushroom-shaped when fertility is below replacement, and median age is higher. 

When the population unit is relatively small, as with most of the counties listed above, these demographic factors can reinforce one another and create extreme values.  For larger units of population, such as large counties, metropolitan areas and states, differences should be less extreme, but they can still be significant. 

The population estimates from which median ages were calculated contain detail by race/Hispanic origin and sex, allowing us to examine the percent minority as a surrogate for the influence of immigration and the boost to overall fertility levels that immigrants and native-born minorities provide.  We can also look at a measure of recent total fertility by calculating the ratio of children age 0-4 to women in the primary reproductive ages of 20-44.  We cannot get a direct estimate of net domestic migration by age group from the published population estimates, however.  

The table at the bottom of this post, constructed from the 2013 population estimates, ranks states on median age, percent minority, and fertility.  While Florida has the county with the highest median age, the state as a whole is only the 5^th oldest, surpassed by Maine, Vermont, New Hampshire and West Virginia.  The lower the percentage minority in a state, the higher the median age (Figure 1). The oldest states are those where young immigrants and native-born minorities with higher fertility have not settled.  Maine, Vermont, West Virginia and New Hampshire rank the lowest on percent minority. In addition, the lower the total fertility rate, the higher the median age (Figure 2). This second relationship is the stronger of the two that are graphed, and the relationship holds fairly well across the entire range of fertility (discounting DC as an outlier).  The New England states collectively are also near the bottom of the ranking on total fertility.

Source: U.S. Census Bureau Population Estimates

Older states may be destination states for retirement migration, but can also have lost young adults from out-migration to states with bigger cities and more job opportunities.  For example, according to the 2012 American Community Survey, Maine gained 27,500 residents from other states during the previous year, but lost 38,500.  If most of the out-migration from Maine were young adults, the effect would be to increase the median age.

The youngest states, however, are more of a mixed bag.  Utah’s very high fertility level – the highest in the nation – is sufficient to secure its ranking as the state with the youngest median age. Utah is not completely lacking in diversity - its percent minority (20.3%) is just the 18^th lowest, but the total fertility rate in Utah is primarily driven by its non-Hispanic white population’s high rate of childbearing.  Alaska, the second youngest state, has a large minority population (mostly native Alaskans), as well as levels of fertility that are well above the U.S. average.  Its young ranking, however, is likely also determined by in-migration of young adults to work in energy and nature oriented jobs, and out-migration of the elderly to warmer climates.  The District of Columbia has achieved its ranking as the third youngest in all likelihood because of in-migration of young adults to work in Washington for a spell.  These adults are largely single, as suggested by DC’s extremely low fertility. But also contributing to DC’s young age structure is the fact that the percent minority is the highest on the mainland (64.2%).  Texas is the 4^th youngest state, both due to its high percent minority (56%) and high fertility.  Texas has received consistent growth from both immigrants and young domestic migrants in recent years.  The final state among the top five youngest is North Dakota, which has been the beneficiary of considerable in-migration of young adults to work in the booming energy sector in the western part of the state.  North Dakota’s fertility rate is also among the highest, attesting to the impact of a favorable economy on family formation.   

Geographic diversity in age structures has direct implications for housing market dynamics.  Places with younger age structures will require new construction to house young adults, both now and in the future.  If the young age structure is created by higher fertility, homes will need to be larger to accommodate larger families.  If the younger age is created by in-migration of singles, a different housing mix is required, at least in the short run. 

Places with older populations are expected to show a greater balance between supply and demand for existing housing.  An older age structure brought about by low fertility and out-migration of young adults will have less need for new construction.  This is especially true if the existing housing is located in places where young adults want to and can afford to live.  However, if future demand for existing housing by young adults or older in-migrants is not there, older adults may be less able to sell their homes, and we can expect higher rates of aging in place. In these places there would be a greater need for modification and upgrading of existing housing to help the elderly safely stay in their homes.  On the other hand, if the older age structure is primarily the result of in-migration of retirees, and if that in-migration is sustained, there will be more opportunities for new construction and for the elderly to sell their homes in order to adjust their housing needs.  

Source: 2013 Census Bureau population estimates for states and counties.

*Fertility Rate is the number of children age 0-4 per 1000 women age 20-44. 

Strategies for Achieving Scale in the Residential Remodeling Industry

by Abbe Will
Research Analyst

Since its inception nearly twenty years ago, the Remodeling Futures Program of the Joint Center for Housing Studies has been investigating trends in contractor size, concentration, performance, and survivorship to better understand the evolving structure of contractors serving the residential remodeling market. Unlike the national homebuilding industry, which saw significant achievements of scale and consolidation in recent decades, the professional remodeling industry continues to be highly fragmented, where the vast majority of remodeling companies are relatively small, single-location businesses that likely will not experience any significant growth over the course of the business’s life-cycle. Two thirds of remodelers are self-employed, and fully half of payroll establishments have total revenues of under $250,000. Yet our research suggests that there are significant benefits to be gained through larger scale businesses.

The evidence for the benefits of scale in the remodeling industry is compelling. Comparing the revenue growth of larger-scale remodeling companies to the industry as a whole shows that larger-scale remodelers benefit from significantly stronger revenue growth. Where the average revenue of all residential remodeling contractors increased less than 18% in inflation-adjusted terms during the last industry upturn from 2002-2007, larger-scale firms with annual revenues of approximately $1 million or more increased their average revenue by over 30% during the same period. Additionally, larger-scale remodeling contractors benefit from higher revenues per employee, which implies that they enjoy greater labor productivity (Figure 1). While an admittedly crude measure of efficiency and productivity, the trend is obvious that larger remodeling businesses are seeing a benefit of scale.

Source: Unpublished tabulations of the 2007 Economic Census of Construction, U.S. Census Bureau.

Furthermore, there is evidence that larger-scale remodeling firms suffer significantly lower failure rates across the rocky business cycle (Figure 2). Remodelers with estimated receipts of $1 million or more during the last industry upturn in 2003–04 had a failure rate of only 2.7% that year, and their failure rate remained essentially unchanged during the cyclical downturn in 2009-10. These low and stable failure rates for the largest remodelers are in stark contrast to the roughly 20% failure rates of smaller remodeling businesses. With the efficiency gains that come along with achieving scale economies, larger remodeling companies seem much better equipped to ride out the volatile business cycles in the remodeling industry.

Source: JCHS estimates using U.S. Census Bureau tabulations of the 1989-2010 Business Information Tracking Series.

Although larger-scale remodeling firms enjoy significant benefits to scale, the industry has remained fragmented over time due to the many obstacles to gaining scale such as low barriers of entry, highly customized work, and difficulty attracting capital, to name a few. Understanding how remodeling companies are overcoming these major hurdles in their pursuit of scale economies should provide insights into how the industry is likely to continue evolving over the next several decades, as well as what opportunities exist for more widespread consolidation moving forward.

To this end, the Remodeling Futures Program has been conducting in-depth interviews with several dozen remodeling industry leaders including founders, presidents, and CEOs of larger-scale remodeling companies on the topic of benefits from scale and challenges and strategies for achieving scale. Key research questions for the project focus on exploring the major approaches used for gaining scale, challenges and opportunities unique to each type of strategy, and whether certain types of remodeling specialties or niches are more or less likely to attempt to establish a larger-scale or even national presence.

A key insight gained from these interviews is that successfully achieving scale in the remodeling industry has more typically occurred using strategies outside of the traditional model of organic expansion and acquisition. Common among remodeling companies that have been successful in establishing a larger-scale presence are strategies or approaches that involve strategic partnerships or arrangements, such as:

• Strategic Alliances: When expanding to new markets, building brand awareness and trust takes a significant investment of time and money, so securing strategic alliances or partnerships with long-standing, nationally known manufacturing and retail brands to sell, furnish, and install products and projects is very effective for gaining entry into new markets with instant name recognition and credibility with consumers, who, given the same quality and price, will choose the brand with which they are already most familiar. Strategic alliances ultimately provide a contractor with a high volume of quality leads in new markets. 

• Franchising: Franchising is a well-established scaling strategy in many industries that allows a business to quickly expand its brand recognition and reach without the challenges of managing each independently-owned and operated franchise location. Franchising in the remodeling industry seems to be more successful with single focus or specialty businesses, such as painting and insurance restoration services that are easier to standardize and streamline. 

• Outside Investment: Pursuing outside investment through private equity partnerships, for example, provides a company with an influx of working financial capital for expanding into new markets, developing additional lines of business or products, or restructuring operations or management to better foster growth. Though a highly effective way to scale a remodeling company toward a national presence, this strategy of securing outside investment has not been more common because investors are deterred by the relatively high-risk nature of such a volatile and fragmented industry.

Since the remodeling industry is so diverse, with business segments and market niches that cover the full spectrum from full-service and design/build firms to specialty replacements and handyman services, there is no one-size-fits-all approach to achieving scale. Companies often employ multiple business strategies and arrangements either consecutively or concurrently. Some of the biggest benefits of scale reported by industry leaders include improved buying power, lower costs, efficiency of centralized accounting and management, and improved use of technology systems, as well as geographic diversity (i.e., not being dependent on the economic strength of one market or region), greater ability to explore new business opportunities, greater consumer recognition and trust, and being able to provide growth opportunities to key team members. The many issues surrounding this topic of strategies, benefits and challenges of achieving scale in the residential remodeling industry will be explored in greater detail in an upcoming Joint Center working paper.

Home Improvement Upturn Expected to Begin Tapering in 2014

by Abbe Will
Research Analyst

The home remodeling market continues to improve, with strong gains expected for the remainder of 2013 and the beginning of 2014, according to our latest Leading Indicator of Remodeling Activity (LIRA).  While the LIRA continues to project annual improvement spending increasing at a double-digit pace in the near term, a slowdown of this growth can be expected by the middle of 2014.

The soft patch that homebuilding has seen in recent months, coupled with rising financing costs, is expected to be reflected as slower growth in home improvement spending beginning around the middle of next year. However, even with this projected tapering, remodeling activity should remain at healthy levels.

In the near term, homeowner spending on improvements is expected to see its strongest growth since the height of the housing boom.  Existing home sales are still growing at a double-digit pace, and rising house prices are helping homeowners rebuild equity lost during the housing crash. (Click chart to enlarge.)

For more information about the LIRA, including how it is calculated, visit the Joint Center website.