Home renovation spending reached a record high this summer, according to Harvard University’s Joint Center for Housing Studies. Although they expected those numbers to continue to soar through the end of 2019, the JCHS now says it expects a complete stall come 2020.
(Image courtesy of Harvard University’s Joint Center for Housing Studies. Click to enlarge.)
The Leading Indicator of Remodeling Activity released by the Remodeling Futures Program at JCHS said that annual gains in homeowner spending for improvements and repairs will dissipate by the second half of 2020. Know How To Rebuild Your Home After A Flood?
To that point, the LIRA states that the annual home improvement and maintenance expenditures will post a modest decline of 0.3% through the third quarter of 2020.
“Continued weakness in existing home sales and new construction will lead to sluggish remodeling activity next year,” said Chris Herbert, managing director of the JCHS. “Slowdowns in other key indicators of improvement spending—project permitting, sales of building materials, and home prices—also suggest the remodeling market may be reaching a turning point.”
Back in July, JCHS said that it expected remodeling spending to total a record $331 billion for all of 2019.
Now, the furthest projection in the index (the end of Q2 2020) suggests that spending over the prior 12 months will probably total $323 billion.
“At $325 billion, owner improvement and repair spending in the coming year is expected to essentially remain flat compared to market spending of $326 billion over the past four quarters,” says Abbe Will, associate project director in the Remodeling Futures Program at the Center. “However, today’s low mortgage interest rates may help counter some of these headwinds, which could buoy home improvement expenditure over the coming year.”
After several years of solid acceleration, annual growth in national home improvement and repair spending is expected to soften in 2019, according to the Leading Indicator of Remodeling Activity (LIRA) released today by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. The LIRA projects that year-over-year increases in residential remodeling expenditures will reach a decade high of 7.7 percent this year and then start to drift downward to 6.6 percent through the third quarter of 2019.
“Rising mortgage interest rates and flat home sales activity around much of the country are expected to pinch otherwise very strong growth in homeowner remodeling spending moving forward,” says Chris Herbert, Managing Director of the Joint Center for Housing Studies. “Low for-sale inventories are presenting a headwind because home sales tend to spur investments in remodeling and repair both before a sale and in the years following.”
“Even so, many other remodeling market indicators including home prices, permit activity, and retail sales of building materials continue to strengthen and will support above-average gains in spending next year,” says Abbe Will, Associate Project Director in the Remodeling Futures Program at the Joint Center. “Through the third quarter of 2019, annual expenditures for residential improvements and repairs by homeowners is still expected to grow to over $350 billion nationally.”
The Leading Indicator of Remodeling Activity (LIRA) provides a short-term outlook of national home improvement and repair spending to owner-occupied homes. The indicator, measured as an annual rate-of-change of its components, is designed to project the annual rate of change in spending for the current quarter and subsequent four quarters, and is intended to help identify future turning points in the business cycle of the home improvement and repair industry. Originally developed in 2007, the LIRA was re-benchmarked in April 2016 to a broader market measure based on the biennial American Housing Survey.
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 next LIRA release date is January 17, 2019.
The Remodeling Futures Program, initiated by the Joint Center for Housing Studies in 1995, is a comprehensive study of the factors influencing the growth and changing characteristics of housing renovation and repair activity in the United States. The Program seeks to produce a better understanding of the home improvement industry and its relationship to the broader residential construction industry.
The Harvard Joint Center for Housing Studies advances understanding of housing issues and informs policy. Through its research, education, and public outreach programs, the center helps leaders in government, business, and the civic sectors make decisions that effectively address the needs of cities and communities. Through graduate and executive courses, as well as fellowships and internship opportunities, the Joint Center also trains and inspires the next generation of housing leaders.
Hurricane Sandy, possibly the most publicized weather event in memory, has dissipated. But remodelers whose businesses lay in its path are likely to recall it for a long time to come. Their experience may also prove instructive: Sandy, climate scientists point out, likely offers a foretaste of things to come, as severe storms, tornadoes, and other freakish weather events begin to occur more often.
Many remodelers in Sandy’s path responded to the storm rather than just locking their doors and waiting for the maelstrom to pass like other businesses did. “We want to be the only company [homeowners] think of when they need to call a remodeler,” says Matt LeFaivre, president of LeFaivre Construction, in Taneytown, Md.
Here are some lessons passed on by owners of those companies:
1) Secure the jobs you’re currently working on: A crew from LeFaivre Construction spent six hours closing up an open wall adjacent to the location of the stick-built sunroom it was about to build. Some companies postponed jobs about to start. Dutchess Building Specialists, in Poughkeepsie, N.Y., postponed removing a roof that was set to come off prior to building a two-story addition, its president Brian Altmann says, and brought in three extra people to get a shingle roofing job wrapped up the Friday before the storm hit.
2) Safeguard buildings and their contents: Obvious measures include covering windows with plywood against glass-shattering debris. But what about rising water? If it’s at all a possibility, clear floors. The foot of seawater that entered Pardini Construction, a mile and a half from the beach in Long Branch, N.J., would have caused far more destruction had electronics and files not been removed, according to sales manager David Brown. And don’t forget data. In addition to regularly backing up computer files, Matt LeFaivre made two separate copies of hard drive contents and stored these at off-site locations. Know how you can Secure you homes here.
3) Take care of your own: In the days before Sandy struck and devastated Long Island, Alure Home Improvement held an “emergency response meeting” to, in the words of its president Sal Ferro, determine “how we support clients, family, friends, and employees immediately after.” Make employees your first concern. If their homes are damaged or they are concerned about damage, they probably, in any case, won’t be part of your emergency response effort for clients. Have a plan and make everyone part of it. Episcopo Brothers, in Summit, N.J., “let everyone know they had to be available for the next two weeks,” says co-owner Joe Episcopo.
4) Decide what services to offer and prioritize requests: In areas slammed by Sandy, homeowners contacting remodeling companies were mostly seeking repair of damaged exteriors, especially roofs. That ranged from “a few calls” at Dutchess Building Specialists to hundreds a day at companies in New Jersey and on Long Island. When Hurricane Isabel hit the Virginia coast in 2003, Criner Remodeling owner Robert Criner found himself so swamped with calls that he at first limited commitments to past customers, then past customers within 10 miles of the company’s offices, then to past customers within 5 miles of the company’s offices. Criner says he quickly realized he “can’t solve everybody’s problems.”
5) Reach out before, during, and after the storm: Gehman Custom Remodeling, in Harleysville, Pa., sent an email blast immediately following Hurricane Sandy, alerting its list that the company was available for repair work. Owner Dennis Gehman says that for taking care of its customers, “we gained a few more.” But if he had to do it again, “we’d do an email blast a day or two before” the storm letting people know “that our phones are on and we’ll respond as long as it’s safe to be out.”
6) Set up clear lines of communication: If land lines to your office go down, how will customers reach you? Episcopo & Sons posted owner and employee cell phone numbers on a landing page. But if your phone system and office staff aren’t set up for it and too many calls come in at the same time, you’ll lose some. Joe Percario, owner of Percario General Contractor, in Roselle, N.J., estimates he received at least 350 calls via cell phone during the first day of Sandy. If he was going to do it again, Percario says, he’d hire an answering service to forward all calls as text messages or email, to ensure that all calls are responded to and that contact information is captured.
7) Prepare to be without fuel and power: In New Jersey and parts of New York, gas stations had no power and fuel trucks were delayed. Episcopo & Sons managed the problem by purchasing 300 gallons of gas and 200 gallons of diesel before Sandy hit. Meanwhile, many companies struggled to work around partial or total power failure. Percario says that if he knew he was going to go through a Sandy-type storm again he’d equip his office with an industrial generator similar to the Honda 9,000-watt industrial generator (price $5,400) he used at home.
8) Stock the equipment and material you’ll need for the work you’ll do:Alure’s Ferro says that his ideas about how to manage an emergency situation evolved “from the day before Sandy to the day after to today.” Among other things, he says, his company would have more remediation equipment on hand. List the products you need, including tarps, chain saws, dewatering pumps, fans, and dehumidifiers. You can lease some of these, but it’s good to get your name in at the company where you lease equipment well before the demand really starts.
9) Know the experts to call: A tree hits a roof and the homeowner calls a day later wanting you to replace the shattered rafters and rebuild walls and floors. But you can’t get started before removing the tree. Tree removal specialists do that. (No, they don’t have to be licensed.) Relationships with such local service providers are essential. LeFaivre Construction, for instance, typically refers clients to one of two local tree removal companies. If clients call and get no response, president Matt LeFaivre calls the tree companies personally.
10) Assess whether you’re set up to handle insurance work: Flooded basements, smashed roofs, yards strewn with downed trees … How will you bill for the repair work you do? Criner says that he opted to submit an estimate with a fixed price rather than billing hourly. He advises that homeowners need to be aware that their insurance may not cover the total cost of all work. With major damage repairs, you’ll probably be dealing with insurance adjusters. It’s a good idea to get someone on your staff trained in how to do that — and expect clients for repair or storm damage work to be in a somewhat different frame of mind than clients for a new kitchen.
