US homeowners are expected to spend less on home improvements and repairs over the next year, according to Harvard University’s Leading Indicator of Renovation Activity. Joint Center for Housing Studies.
Annual gains in homeowner spending on improvements and repairs are expected to narrow to 1.5% by the end of 2020, from an annual gain of 4.8% in 2019, the center said in a report Thursday. Annual increases over the past decade have ranged from 5% to 7%, according to the report.
The estimate would put 2020 spending on home renovations and repairs at $333 billion, up from $328 billion in 2019 and $313 billion in 2018, the report said.
“A sub-2% growth projection for 2020 is certainly lackluster for the remodeling market, especially given the historic average annual growth of around 5%,” the report said. “Even so, homeowners’ spending on improvements and repairs is expected to increase further this year.”
Renovation spending can be an indicator of real estate demand, as home sellers typically spruce up their properties before they put them up for sale. On the other side of the deal, buyers often spend money after a home closes to renovate and redecorate the way they like it.
These expenses are an important part of the US economy as they drive consumer spending which accounts for about 70% of GDP.
The expected slowdown in renovation demand for existing properties comes at a time when residential construction activity is expected to pick up. Builders will likely start building 975,000 single-family homes in 2020, Fannie Mae said in a Dec. 23 forecast. It would be the highest level since 2007, according to government data.
The expected slowdown in renovation spending this year is unlikely to continue into 2021, according to the Harvard report.
“As homebuilding and sales activity strengthens, the softness of the start of last year will continue to pull growth in renovation spending in 2020,” the report said. “However, the downturn should begin to moderate by the end of the year, as today’s healthier housing market indicators will ultimately lead to more home renovations and repairs.”