For the first time since 2006, home improvement spending is on the upswing. Annual growth will be nearly 5% in 2010, and all signs suggest that the positive trend will continue in 2011, according to the latest Leading Indicator of Remodeling Activity (LIRA), released today by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University.
The news comes as some relief to industry observers. “Like everyone else, we’ve been waiting for the market to turn,” says Kermit Baker, director of the Harvard program. “The only modest surprise is how steep the uptick is,” particularly as the fourth quarter “takes us into positive territory” and growth continues in 2011.
Conducted quarterly, the LIRA is comprised of eight data points that affect home improvement spending. These include shipments of building materials (Census Bureau), the Pending Home Sales Index (National Association of Realtors), the Remodeling Market Index (future business expectations, National Association of Home Builders), and the 30-year Treasury Bond yield (Federal Reserve Board).
Of all these indicators, the leading mover for the latest LIRA is pending home sales, which Baker says are “moving very strongly.” The Remodeling Market Index provides a significant lift as well, especially since it was “very depressed for such a long period.” Baker also cites low interest rates, but notes that these are beginning to climb again.
Major problems in the housing industry remain, Baker says, especially the massive inventory of homes for sale. The potential upside of this for remodelers is that “many of these homes will need to be fixed up before they can be sold.”
He also points to continued volatility in the materials market, such as metals and lumber. “The market has been weak for so long that it probably shuttered a lot [of materials production], and it takes a while to get the capacity back up,” Baker says. “If demand comes on faster than manufacturers expect, there could be another round of materials inflation. That would be quite ironic.” --Leah Thayer is a senior editor of REMODELING.