Tag Archives: US Census Bureau

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.

 

1 Comment

Filed under LIRA

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.

 

Leave a comment

Filed under JCHS, LIRA