Leading Indicator of Home Remodeling Activity Shows Hope - Maybe

The American Dream of Owning a Home, and Caring for it, Appears to be Fading

Mark J. Donovan

Last month Harvard’s “Remodeling Futures Program at the Joint center for Housing Studies” reported that home remodeling spending is expected to accelerate in early 2011. This is based on its “Leading Indicator of Remodeling Activity”, also known as LIRA. However the report is quick to state “absent a reversal of recent economic progress”.

I’m not so sure that there has been any real economic progress, at least at the homeowner and consumer level. Certainly corporations showed some positive quarterly reports earlier this year, but the ability for them to sustain those positive earnings are now coming into question. But in terms of unemployment, at 9.5% officially and 20% unofficially, homeowners and consumers have yet to see any economic bullish times.

Reviewing the LIRA historical data table linked in the report (Home Remodeling Spending Report) it is astounding to see that homeowner improvement spending has declined from 3Q2007 through 1Q2010 in every quarter, and is expected to continue to fall until 4Q2010. Based on new economic data since this July report, it may be even longer before there is finally an uptick in homeowner improvement spending.

The data further suggests that homeowner improvement spending peaked at $146.2B in 2Q2007, and is expected to fall to $107.7B by 3Q2010. That represents a 36% decline in homeowner improvement spending. This fact is both shocking and not surprising. Not surprising that homeowner spending dropped, but shocking by how much. The home has been historically the quintessential American dream. Based on a combination of economic conditions and possibly a new view of owning a home, it appears that the home is no longer a special commodity in the hearts of Americans.