The New Remodeling Forecast is Available for Download!
 Highlights:
While residential remodeling expenditures remained relatively strong through 2006, the ongoing housing market contraction coupled with the sharp deceleration in house price appreciation will curb growth in 2007 and 2008, before expenditures recover in 2009. The latest available figures from the Census Bureau lend credence to this forecast, showing weakness in remodeling expenditures in the first quarter of 2007 relative to a year earlier.
Given the pro-cyclical nature of improvements spending, owner occupants will reduce improvements expenditures in 2007 and 2008 as the housing market struggles to find the bottom of this correction. Owners of rental housing have already reduced their expenditures in 2005 and 2006 and will keep them low through 2007 and 2008.
Given the counter-cyclical nature of spending for maintenance and repairs, these expenditures will rise for owner occupants in 2007 and 2008, having already begun to rise among owners of rental housing in 2006.
The relative strength of the remodeling industry in 2006 is in all likelihood the last gasp of the recent housing bubble. While residential fixed investment added one half and one third of a percentage point to real GDP growth in 2004 and 2005, respectively, it shaved a quarter point from growth in 2006. Remodeling expenditures, captured in the improvements component of residential fixed investment, made a positive contribution to growth of nearly one tenth of a percentage point in 2006, but we expect real declines in 2007 and 2008.
NAHB’s Remodeling Market Index (RMI) posted further declines in the second quarter of 2007 for both the current market conditions and future expectations components of the index. The RMI components dipped below 50, indicating pessimism on the part of remodelers, in late 2005 for the first time since 2003, and have trended downward in the subsequent quarters.
Beginning in 2009, overall remodeling expenditures will return to more robust growth, driven largely by improvements expenditures strengthening as housing market conditions improve and in spite of a counter-cyclical slowing of maintenance and repairs expenditures.
 Full Forecast Report
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