Remodeling Activity Will Remain Strong but Challenges Are Emerging, RRI Finds
Big-ticket residential remodeling activity nationwide in the third quarter rose 5.3% from the year-earlier period, Metrostudy said in the release of the latest Residential Remodeling Index (RRI). The index reached an all-time high of 115.7 during the third quarter and rose 1.1% from the second quarter of 2018.
The RRI value means the economic conditions known to influence remodeling activity are 15.7% better than the old peak in early 2007, just before the Great Recession. The growth of the RRI from the second quarter marks the 26th consecutive quarter of growth year-over-year for the RRI.
“Remodeling continues to be fueled by a hot jobs market. October job gains exceeded forecasts and the unemployment rate held at a 48-year low,” said Mark Boud, Chief Economist at Metrostudy. “And more significantly in October, American workers saw the biggest gain in average hourly earnings since 2008.”
However, the projected growth rates are expected to moderate to an average of 2.9% in 2019 and 2.3% in 2020. The RRI is projected to strengthen again in 2021, with average growth projected at a rate of 3.6%. Metrostudy projects future moderated growth will be correlated to a plateau in employment growth, decreasing home affordability, and declining home sales. Boud said remodelers may benefit with rising mortgage rates, with more homeowners electing to stay and make improvements to their current homes.
The RRI is based on a statistical model that takes into account data such as household-level remodeling permits, employment statistics, and a market’s economic health. It uses that model to predict the number and dollar volume of home improvement and replacement projects worth at least $1,000.
Metrostudy projects the number of remodeling projects worth $1,000 or more will rise to 12.6 million, a 5.1% increase from last year. Big-ticket exterior projects and siding projects are projected to have the biggest increases from 2017. The inflation-adjusted value of big-ticket remodeling projects in 2018 is predicted to increase 6.7% to $194.4 billion.
According to Metrostudy, the 381 metro areas surveyed will see growth in project volume for 2018, and projects these markets will experience an average growth of 4.3%. All but two metro areas—Bismark, N.D. and Vineland-Bridgeton, N.J.—are expected to experience growth in project volume during 2019, but the average growth is expected to moderate to 2.8%.