Expect the growth of homeowners’ spending on remodeling to slow significantly over the next six months, housing researchers say, as economic uncertainty slows and a pandemic-induced sugar high wears off.
American homeowners will likely spend around $445 billion on remodeling in the second and third quarters of 2023, down from a forecast of $448 billion in the first quarter of next year but up from the $418 million observed in the third quarter of this year and the $427 million predicted for the fourth quarter.
“Housing and remodeling markets are undoubtedly slowing from the exceptionally high and unsustainable growth rates that followed in the wake of the pandemic-induced recession,” Carlos Martín, director of the Remodeling Futures Program at Harvard University’s Joint Center for Housing Studies, said in a statement. “Spending for home improvements will continue to face headwinds from declining home sales, rising interest rates, and the increasing costs of contractor labor and building materials.”
The center’s Leading Indicator of Remodeling Activity index projects year-over-year growth in homeowner remodeling and repair spending to shrink from 16.1 percent in 2022 to 6.5 percent by the third quarter of 2023.
Some of that growth is expected to be driven by Florida residents’ attempts to put damaged homes back together after Hurricane Ian, and energy retrofits incentivized by the Inflation Reduction Act that passed Congress over the summer.
“Although remodeling market gains are expected to cool significantly next year, homeowners still have record levels of home equity to support financing of renovations,” Abbe Will, associate director of the Remodeling Futures Program, said in a statement. “Energy-efficiency retrofits incentivized by the Inflation Reduction Act of 2022, as well as disaster repairs and mitigation projects following Hurricane Ian will further support expansion of the home remodeling market to almost $450 billion in 2023.”
The news is both good and bad for lenders, who are hoping they can grow their home equity line of credit businesses to make up for plummeting demand for refinances and less drastic declines in demand for purchase mortgages.
