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Real Estate

Home renovation boom expected to weaken in 2020

Spending on remodeling expected to gain 1.5% this year, compared with 4.8% in 2019

U.S. homeowners are expected to spend less on home improvement and repairs over the next year, according to the Leading Indicator for Remodeling Activity from Harvard University’s Joint Center for Housing Studies.

Annual gains in homeowner expenditures for improvements and repairs are projected to shrink to 1.5% by the end of 2020 from an annual gain of 4.8% in 2019, the center said in a report on Thursday. Annual increases in the past decade have ranged from 5% to 7%, the report said.

The estimate would put 2020’s spending on home renovation and repairs at $333 billion, compared with $328 billion in 2019 and $313 billion in 2018, the report said. 

“A 2020 growth projection of less than 2% is certainly lackluster for the remodeling market, especially given historical average annual growth of about 5 percent,” the report said. “Even so, homeowner improvement and repair expenditures are still set to expand this year.”

Renovation spending can be an indicator of real estate demand because home sellers usually spruce up their properties before listing them. On the other side of the transaction, buyers often spend money after closing on a home to renovate and redecorate in a way they like.

Those expenditures are an important part of the U.S. economy because it boosts the consumer spending that accounts for about 70% of GDP.

The projected softening in renovation demand for existing properties comes at a time when homebuilding activity is expected to pick up. Builders probably will start construction on 975,000 single-family homes in 2020, Fannie Mae said in a Dec. 23 forecast. That would be the highest level since 2007, based on government data.

The slowdown expected for renovation spending this year probably won’t continue into 2021, the Harvard report said.

“While homebuilding and sales activity are now firming, softness from earlier last year will continue to pull on remodeling spending growth in 2020,” the report said. “However, the slowdown should begin to moderate by year-end as today’s healthier housing market indicators will ultimately lead to more home renovation and repair.”

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