Household spending on remodeling, which started to rise again in the fourth quarter of 2010, is projected to make a big leap through the first half of this year, according to the latest estimates by Harvard’s Joint Center for Housing Studies.

Kermit Baker, a senior research fellow at the Joint Center, presented these data at the International Builders' Show in Orlando, Fla., on Friday morning. He was joined in that seminar by Paul Emrath, NAHB’s vice president of survey and housing policy research, who shared findings from the trade group’s latest survey of remodelers, as well as some interesting historical data on spending by metro markets.

While the remodeling sector has gone through what Baker called “an unusually volatile cycle,” its 18.8% decline in spending between 2007 and 2009 paled beside the precipitous descent in new-home construction and sales. During this period, in fact, remodeling’s share of the total residential market increased to 70% in 2009 from 45% historically.

However, remodeling activity has remained fairly concentrated geographically, with the top 10 metro markets accounting for 35% of remodeling spending, and the top 35 accounting for more than half.

The Joint Center projects that remodeling spending nationally will hit $125.1 billion in the first quarter of 2011, a 9.1% jump from the previous quarter; and reach $140.9 billion in the second quarter, before receding to $123.5 billion in the third quarter. Baker cited a number of factors that are likely to drive that growth:

•An estimated 5% of all homes with mortgages are in foreclosure and another 1.2 million could be repossessed in 2011. Baker said that people who purchase distressed properties spend, on average, 15% more on remodeling and repair than buyers of non-distressed properties. “We feel rehabilitation of distressed properties could be a growth area for remodeling,” he stated.

•Mobility rates among homeowners have been declining “and are unlikely to increase anytime soon,” said Baker. That dynamic—which suggests that owners will stay in their homes longer—coupled with the fact that more owners are converting their mortgages to lower-cost fixed-rate instruments, could provide the stimulus for them to upgrade and remodel their existing home.

•Energy efficiency has been another spur to remodeling. Baker pointed to polling of remodelers that found 56% engaged in energy-related work in the third quarter of 2010, compared to 40% in mid-2009.

The Joint Center projects that annual growth for remodeling spending would be 3.5% for the years 2010 through 2015. That’s certainly better than the 1.4% annual decline in the previous five years, but not quite up to the 7.3% annual gain from 2000 to 2005. “It looks like it’s going to return to relatively normal growth levels,” Baker said.

NAHB’s Emrath shared the latest findings from the trade group’s Remodeling Market Index (RMI), which is conducted quarterly and based on at least 400 responses from remodelers. Throughout 2010, the Index, which tracks remodelers’ attitudes about current and future business conditions, hovered in the lower 40s, with 50 being where opinions about “better” or “worse” conditions are in equilibrium.

The Index for current market conditions for additions and alterations over $25,000 was 49.2; and 48.3 for “Call for Bids.” Emrath pointed out, though, that 38% of remodelers polled said their customers are “always or nearly always” getting multiple bids before they purchase. Consequently, fewer remodelers are charging for submitting estimates.

NAHB projects steady, if not spectacular, increases in gross domestic product, residential fixed investment, and owner-occupied spending on improvements in 2011 and 2012. But one of the more interesting findings that Emrath showed his audience was a chart that tracked what projects remodelers are doing these days. Kitchens, baths, whole-house, and room additions all declined between 2004 and 2010, whereas “handyman services” were being engaged by 33% of the remodelers polled in 2010, versus 17% in 2004. “What we’re seeing is an attempt to survive,” he observed.

Emrath also provided a breakdown of remodeling spending by county, extrapolated from the latest American Community Survey’s estimates for 2005 through 2009, which the government released last month.

The average per-house spending for all counties in the U.S. was $2,085. Among the counties with the greatest number of households, Los Angeles led the nation in remodeling spending during this period, at $6,071 per home. (L.A. also was tops for total remodeling spending, at $9.375 billion per year.) In counties with the highest home values, the leader was Nantucket, Mass., where remodeling spending was $9,369 per house. In markets with the oldest housing stock, Terrell County, Texas, owners spent, on average, $2,247 per home on remodeling.

 John Caulfield is senior editor for BUILDER magazine.

Learn more about markets featured in this article: Orlando, FL, Los Angeles, CA.