Cautious Optimism in the Remodeling Market

Home remodeling is expected to rebound slightly in Q2 and Q3 of next year, according to the latest Leading Indicator of Remodeling Activity (LIRA) from Harvard’s Joint Center for Housing Studies. After experiencing a moderate downturn which is expected to continue through 2024-Q4 and 2025-Q1, homeowner expenditures for improvements and repairs are expected to trend up through the first half of 2025, with annual spending anticipated to reach $466 billion by mid-2025. 

Economic Factors Influencing Remodeling Activity

Several economic factors are contributing to this anticipated uptick:

• Stabilizing Material Costs: Fluctuations in building material prices have previously impacted remodeling budgets. However, recent trends indicate a stabilization, making it more feasible for homeowners to plan and execute renovation projects.
  
• Rebounding Housing Market: A modest improvement in home sales is expected to positively influence remodeling activity, as new homeowners often invest in renovations to personalize their spaces. While sales volume is likely to remain well below its 2021peaks, an improving interest rate environment will encourage more renovation.
  
• Federal Incentives: New federal incentives for energy-efficiency retrofits are encouraging homeowners to undertake renovations that contribute to energy savings.

Projected Spending and Market Stabilization

The LIRA projects that by mid-2025, annual spending on home improvements and maintenance will stabilize at $466 billion, closely aligning with the previous four quarters. This indicates that the slowdown in remodeling activity should be relatively mild, and the market will begin to return to a more sustainable pace of growth.

Long-Term Outlook for Homeowners

For homeowners planning renovations, this forecast provides a useful perspective for budgeting and project planning. With the anticipated stabilization in spending, homeowners can expect more predictable costs for renovations and repairs in the coming year. The outlook for 2025 suggests a more balanced market, allowing for steady, sustainable improvements rather than the frenzied upgrades seen in previous years.

Some Reasons for Skepticism

The LIRA is not inflation adjusted. In inflation adjusted terms, this could look more like a flattening out or even a modest decline in remodeling activity. That said, things will, at least, stabilize. 

Read more: Why is Home Depot stock dropping 

Conclusion

The LIRA remodeling outlook offers a cautiously optimistic view for the home improvement sector. With spending expected to stabilize and gradual growth returning, both homeowners and industry professionals can look forward to a steadier and more sustainable renovation landscape by mid-2025.

Franklin Carroll

Franklin Carroll is Kukun's VP of Modelling and Analytics; After finishing his studies at the University of Chicago, he worked at Fannie Mae where he helped build Collateral Underwriter, roll out the Value Verify initiative, and specialized in collateral related and credit related policy.

Published November 6, 2024