RRI Positive, But Projects Smaller Growth in Next Two Years
Big-ticket remodeling spending increased 2.8% year over year (YOY) in the third quarter of 2019 and 0.5% from the second quarter, Metrostudy/Zonda announced in its release of the latest Residential Remodeling Index (RRI). The index climbed to a new high of 118.9, meaning economic conditions known to influence remodeling activity are 18.9% better than the old peak in 2007.
While the positive growth in the RRI marks the 30th consecutive quarter of YOY gains since remodeling activity bottomed in 2011, growth is coming at increasingly smaller rates. Annual rates have cooled significantly compared with the 5% growth that the industry averaged the past several years.
Metrostudy/Zonda calls for continued gains over the next few years, but at a slower rate than the industry has become accustomed to. The RRI is projected to average YOY gains of 2.2% in 2020 and 2.4% in 2021. The projected gains for 2020 are marginally higher than projections from the second quarter RRI.
The strength of the consumer is continuing to support the economy as business investment and manufacturing are being constrained by a near 16-month-long trade war with China, according to Metrostudy/Zonda chief economist Mark Boud.
“Even if a trade agreement with China is reached, slower employment growth is projected over the next few years as the economic cycle wanes. In addition, existing home sales continue to struggle under lack of supply, a trend that will likely continue given the low rates of new home construction, particularly at the lower price levels,” Boud said. “Weaker employment-generated demand and low housing turnover points to slower rates of remodeling growth compared to the last few years of booming business.”
Metrostudy/Zonda projects the number of remodeling projects worth $1,000 or more will total 13.0 million in 2019, a 3.2% YOY increase. Big-ticket exterior and flooring projects are expected to experience the largest increases compared to 2018, while pool and addition projects will have the smallest YOY increases. The inflation-adjusted value of big-ticket remodeling projects in 2019 is predicted to increase $9.2 million from 2018 to $203.7 billion by the end of 2019. The number of big-ticket remodeling projects is forecast to increase by roughly 300,000 in 2020 to 13.3 million, with the inflation-adjusted value of remodeling projects predicted to jump to $211.5 billion.
According to Metrostudy/Zonda, all but one metro area—Bismark, N.D.—will see growth in 2019 remodeling project volume. The average growth rate in project volume in 2019 nationally is projected to be 3.1%. In 2020, 25—or 6.6%—of the 381 metro areas surveyed are projected to see declines in remodeling project volume.
The RRI is based on a statistical model that takes into account data such as household-level remodeling permits and consumer-reported remodeling and replacement projects. It uses a model to predict the number and dollar volume of home improvement and replacement projects nationwide worth at least $1,000 in 381 metropolitan statistical areas and nationwide.