Home Remodeling Market Expected to Stabilize by Year’s End

Street of residential houses
The latest figures released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University suggest that the residential remodeling market will see slowing year-over-year gains throughout much of 2015, with a modest recovery in the fourth quarter.

The program regularly updates the Leading Indicator of Remodeling Activity, a metric designed to estimate homeowner spending on residential improvements for four quarters at a time.

“Moving forward, signs of higher growth in remodeling activity include strengthening retail sales of building materials,” Abbe Will, a research analyst in the Remodeling Futures Program at the Joint Center, said in an April 16 news release. “Also, rising home equity and still favorable interest rates continue to encourage owners to reinvest in their homes.”

Part of the reason for the currently sluggish remodeling market is that sales of existing homes are weak at the moment, Chris Hebert, managing director of the Joint Center, explained. “Housing turnover typically sparks significant improvement spending as new owners customize their recent purchases to fit their needs and, with sales down last year, remodeling will feel the effects this year,” he said.

Homeowners also frequently remodel because they plan to put their homes on the market soon and hope to get their investments back — or even make some cash — by updating first.

But as the Fiscal Times pointed out on April 15th, homeowners need to take a look at the latest data before assuming that even renovations of bathrooms and kitchens will be profitable.

These are costly projects to start with. A major kitchen remodel costs, on average, $56,768, and gets a return of only 67% at resale. A minor kitchen remodel is a bit more promising, with an 80% return on investment.

Of course, none of these figures take into account the enjoyment homeowners can get out of remodeling their spaces. In 2013, an overwhelming majority of survey participants, 79%, said they were remodeling their kitchens to “improve their look and feel” — and it’s difficult to put an accurate price tag on that.

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