Category Archives: LIRA

LIRA: Home Improvement Upturn Expected to Begin Tapering in 2014

Home Improvement Upturn Expected to Begin Tapering in 2014

 by Abbe Will
Research Analyst
The home remodeling market continues to improve, with strong gains expected for the remainder of 2013 and the beginning of 2014, according to our latest Leading Indicator of Remodeling Activity (LIRA).  While the LIRA continues to project annual improvement spending increasing at a double-digit pace in the near term, a slowdown of this growth can be expected by the middle of 2014.The soft patch that homebuilding has seen in recent months, coupled with rising financing costs, is expected to be reflected as slower growth in home improvement spending beginning around the middle of next year. However, even with this projected tapering, remodeling activity should remain at healthy levels.

In the near term, homeowner spending on improvements is expected to see its strongest growth since the height of the housing boom.  Existing home sales are still growing at a double-digit pace, and rising house prices are helping homeowners rebuild equity lost during the housing crash.(Click chart to enlarge.)

For more information about the LIRA, including how it is calculated, visit the Joint Center website.

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LIRA 2nd QTR 2013: Remodeling Gains Expected to Continue Into 2014

Remodeling Gains Expected to Continue Into 2014

by Abbe Will
Research Analyst

In our July 16 blog, Census Bureau Remodeling Data Revisions Out of Sync with Other Market Indicators, we indicated that there would not be a Leading Indicator of Remodeling Activity (LIRA) this quarter due to unusually volatile revisions to home improvement spending data collected by the U.S. Census Bureau.  On July 18, 2013, however, Census announced corrections to their annual revisions and today we are releasing our LIRA.

General strengthening in the housing market over the past 18 months is translating into increased spending on home improvements. Remodeling contractors have been reporting improving market conditions for the past four quarters, and are seeing strength in future market indicators.  Spending trends have been on a solid upward slope, with the LIRA projecting continued strengthening of the market through the end of this year and into the first quarter of 2014.

Homeowners are more comfortable investing in their homes right now. Consumer confidence scores are back to pre-recession levels, and since recent homebuyers are traditionally the most active in the home improvement market, the growth in sales of existing homes is providing more opportunities for these improvement projects.

Yet, with housing starts leveling off in the second quarter and financing costs beginning to edge up, we may be seeing the beginning of more measured growth in the residential markets. Given normal timing patterns, this suggests that the pace of growth for home improvement spending should begin to moderate as we move into 2014.

(Click chart to enlarge)

lira_2013_q2_fullsize

For more information about the LIRA, including how it is calculated, visit the Joint Center website.

 

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Census Bureau Remodeling Data Revisions Out of Sync with Other Market Indicators

Census Bureau Remodeling Data Revisions Out of Sync with Other Market Indicators

 by Abbe Will
Research Analyst
Since 2007, the Joint Center for Housing Studies has produced a quarterly Leading Indicator of Remodeling Activity (LIRA), which makes use of several economic indicators that historically have had strong correlations and leads over remodeling spending to anticipate near-term changes in the market. The Joint Center relies on the homeowner improvement expenditure data reported in the U.S. Census Bureau’s monthly Construction Spending Put in Place series (C-30) to estimate and benchmark its LIRA.
On July 1, the Census Bureau released its regularly scheduled annual revisions to the C-30, which adjusted the monthly improvement spending estimates back two calendar years to January 2011. As seen in Figure 1, these revisions increased estimates of home improvement spending by 6% for 2011 (from $114 billion to $121 billion) and decreased spending over 10% for 2012 (from $125 billion to $112 billion).

 LIRA

Source: US Census Bureau, Value of Private Construction Spending Put in Place (C-30).

Typically, these annual revisions are minimal and, in the past, changes were always in the same direction as the original estimates, often revising the whole series downward somewhat (Figure 2). This time, not only was the magnitude of the revisions significantly larger than in recent years, but the direction of the revisions was extremely divergent from what could have been expected based on previous annual revisions.

071713_lira_figure2

Source: US Census Bureau, Value of Private Construction Spending Put in Place (C-30).

Certainly, the extent of these revisions by itself calls for a thorough analysis and understanding of the reasons behind such dramatic changes, but the fact that the adjustments are at odds with other key industry data is even more worrisome. Figure 3 compares the annual rates of change in data series that historically correlate highly with home improvement spending (and are used as main inputs in the LIRA) with the pre- and post-revision C-30 data. As seen in the figure, key industry indicators including retail sales at building material and supply stores, remodeling contractor sentiment (RMI), pending home sales (PHSI) and single family housing starts all trended closely with the pre-revised C-30 estimates of homeowner improvement spending since January 2011.

 071713_lira_figure3
Sources: US Census Bureau, Value of Private Construction Spending Put in Place (C-30), Monthly Retail Trade Report and New Privately Owned Housing Units Started; National Association of Home Builders Remodeling Market Index (RMI); and National Association of Realtors© Pending Home Sales Index (PHSI).
At this time, there is no obvious explanation for why the revisions to the C-30 improvements data were so extreme this year. As part of the Joint Center’s investigation of this issue, we will be in contact with the federal agencies involved in collecting the survey data and developing these estimates to assess whether changes in survey methodology or weighting procedures, for example, might explain these large shifts. As the Joint Center reviews the underlying source data for home improvement spending and the procedures that generate these estimates, we have decided to forgo publication of the LIRA this quarter. The next LIRA is scheduled to be released on October 17, 2013.

 

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LIRA Is Building Momentum in the First Quarter 2013

Momentum Building for Home Improvement Activity

Spending by homeowners on improvement projects is expected to accelerate as the year progresses, according to our latest Leading Indicator of Remodeling Activity (LIRA).  On top of the almost 10% growth reflected in U.S. Census Bureau figures for 2012, the LIRA projects strong gains in homeowner remodeling spending continuing throughout 2013, with some moderation in the pace of growth toward the end of the year.
Existing home sales were up almost 9% last year, and house prices are increasing in most markets across the country. This has increased the home equity levels for most homeowners, encouraging them to reinvest in their homes.The strong growth that we’ve seen recently is putting pressure on the current capacity of the home improvement industry. Contractors and subcontractors are having more difficulty finding skilled labor, and building materials costs are unusually volatile for this stage of a recovery.

For more information about the LIRA, including how it is calculated, visit the Joint Center website.

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JCHS: Remodeling Recovery Underway and Picking Up Steam

Remodeling Recovery Underway and Picking Up Steam

 by Abbe Will
Research Analyst

All signs point to a strong rebound for home improvement activity in 2013, according to our latest Leading Indicator of Remodeling Activity (LIRA).  Robust spending in the second half of 2012 suggests the remodeling recovery is already underway, and the LIRA projects annual homeowner improvement spending will see accelerating double-digit growth through the third quarter of 2013. This news comes just ahead of the release of our biennial remodeling report, The U.S. Housing Stock: Ready for Renewal, coming out next Wednesday, January 23.

It’s encouraging to see the residential sector finally contribute to growth in our economy. Through the first three quarters of 2012, investment in the residential sector was responsible for one out of every six dollars added to our GDP.  Moving forward, home improvement spending is expected to make an even larger contribution to GDP growth.
There are many external economic and political risks that could derail this remodeling recovery, but the solid momentum behind home building activity, existing home sales, low financing costs, and remodeling contractor sentiment all point to a solid start to the new year for home improvement spending. (Click chart to enlarge.)
 lira_2012_q4
For more information about the LIRA, including how it is calculated, visit the Joint Center website.

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LIRA: Home Remodeling Spending Set to Accelerate

Home Remodeling Spending Set to Accelerate

An improving housing market and record low interest rates are driving projections of strong gains in home improvement activity through the end of the year and into the first half of 2013, according to our latest Leading Indicator of Remodeling Activity (LIRA).  The LIRA suggests that the seeds for what appears to be a very robust remodeling recovery have been planted, with annual homeowner improvement spending expected to reach double-digit growth in the first half of 2013.
After a bump in home improvement activity during the mild winter, there was a bit of a pause this summer.  However, the LIRA is projecting an acceleration in market activity beginning this quarter, and strengthening as we move into the new year.  Strong growth in sales of existing homes and housing starts, coupled with historically low financing costs, have typically been associated with an upturn in home remodeling activity some months later.  While the housing market has faced some unique challenges in recent years, this combination is expected to produce a favorable outlook for home improvement spending over the coming months.  (Click chart to enlarge.)
LIRA Leading Indicator of Remodeling Activity
For more information about the LIRA, including how it is calculated, visit the Joint Center website.

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2013 Surge in Remodeling?

2013 Surge in Remodeling?

Both the LIRA and the RRI forecast steady growth beginning in Q1 2013

 

The Leading Indicator of Remodeling Activity, released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University, predicts that by Q1 2013, U.S. remodeling activity will increase by 12.2% to $128.9 billion, more than doubling the predicted Q4 2012 growth of 5.9% at $120.7 billion.

The Residential Remodeling Index, released by Hanley Wood, meanwhile, is predicting the number of remodeling and replacement projects to reach 10.5 million in 2013, up from an estimated 10.1 million in 2012.

“Improving housing conditions are clearly buoying consumers to feel confident about making improvements in their homes that they may have postponed for several years,” says Jonathan Smoke, executive director of research for Hanley Wood. “Combine that with aging homes and aging boomers, and you get a recipe for strong growth in remodeling and replacement well into the future.”

—Mark A. Newman, senior editor, REMODELING.

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