Home Equity Lending News

Home Remodeling Forecasted to Slow in Early 2024

Home remodeling activity, which heavily influences home-equity lending volume, is forecasted to slow in the first quarter of next year following a decade of consistent growth. On top of that, fewer projects are being financed. But there is still optimism in some corners of the market.

A short-term outlook for home improvement and repair spending on owner-occupied homes, the Leading Indicator of Remodeling Activity, was 471 in the first quarter, according to a recent news release from the Joint Center for Housing Studies of Harvard University.

Compared to the prior quarter, there was no change in the index. But it ascended from 414 in the first-quarter 2022.

Year-over-year gains are expected to diminish, however, each remaining quarter of this year. By the first quarter of next year, the Joint Center predicts the index will drop 2.8 percent.

The expected drop follows more than a decade of continuous increases in the index.

“Higher interest rates and sharp downturns in homebuilding and existing home sales are driving our projections for sluggish remodeling activity next year,” Carlos Martín, Project Director of the Remodeling Futures Program at the Center, said in the written statement. “With ongoing uncertainty in financial markets and the threat of a recession, homeowners are increasingly likely to pare back or delay projects beyond necessary replacements and repairs.”

Abbe Will, associate project director of the Remodeling Futures Program, said in the written statement, “Homeowner improvement and maintenance spending is expected to top out at $458 billion in the coming year, compared with market spending of $471 billion over the past four quarters.”

But Will offered a glimmer of hope, noting, “Strong and steady growth in the number of homes permitted for remodeling projects, as well as a slew of federal incentives for energy-efficiency retrofits, may yet buoy remodeling expenditure from steeper declines.

The National Association of Home Builders were recently a little more optimistic about upcoming activity. According to the NAHB/Westlake Royal Remodeling Market Index, which is based on a survey of remodelers about the remodeling market, the Future Indicators Index increased two points from the previous quarter.

“Remodelers are generally optimistic about the home improvement market, although some are noting negative effects of material shortages and higher interest rates,” said NAHB Remodelers Chair Alan Archuleta. “Customers are still undertaking larger projects, but are mostly paying cash rather than financing them.”

While projects that were either greater than $50,000 or less than $20,000 were both lower in the NAHB report, projects of between $20,000 and $50,000 were the same.