Harvard Study Predicting Massive Surge in Home Improvement Spending

Recently, we wrote about The Real Cost of Home Improvement where we provided an in depth analysis of the cost associated with various types of home improvement projects. In that article, we presented some data that suggested home improvement spending in 2018 would reach up to $324 billion! If that seems like a high number, you might want to hold your seat. A recent study by the Joint Center for Housing Studies of Harvard University (JCHS) seems to think we've low-balled that estimate by quite a bit. Before we go into too much detail, we'll give you a minute to look at that featured image we've got up top to see for yourself.

Now that you've had a chance to take that in, you can see that the JCHS is predicting upwards of $340 billion in home improvement spending this year. It should be especially noted that this number represents a 7.5% increase from estimated 2017 spending. According to Abbe Will, Research Associate for the JCHS, "Annual growth rates have not exceeded 6.8 percent since early 2007, before the Great Recession hit."

Chris Herbert, Managing Director of the JCHS, attributes this surge to "steady gains in the broader economy" and "a boost from ongoing restoration efforts in many areas of the country impact by last year's record-setting natural disasters."

However, the primary source of this projection comes from a tool maintained by the JCHS's Remodeling Futures Program, the aptly named Leading Indicator of Remodeling Activity or LIRA for short. The Remodeling Futures Program was established in 1995 and closely monitors the factors influencing home improvement and repair activity across the United States. Using this data, they began publishing the LIRA in 2007 and update it on the third week following the closing of each quarter, with the next release date slated for April 19, 2018.

We'll update you once that is released, but for now, we want to give you a little more background on what exactly the LIRA is and how it works.

What is the LIRA?

The Leading Indicator of Remodeling Activity is a tool maintained by JCHS that presents short-term projections on home improvement and repair spending in the United States. First published in 2007, the LIRA has been serving as a key predictor of turning points in the home improvement and repair industry. For more detail on the development of the LIRA, see Amal Bendimerad's in-depth LIRA proposal from 2007.

What Does the LIRA Measure?

The LIRA leverages the Department of Housing and Urban Development's biennial American Housing Survey to draw correlations to JCHS estimates of national home improvement and repair spending for owner-occupied homes. Using this data, the LIRA projects the annual rate of change in home improvement and repair spending. It includes spending on remodeling, renovations, additions, and major alterations or replacements.

How is the LIRA computed?

The JCHS uses a weighted average of rates of change for key economic indicators that influence the industry. These values are then used to calculate a four quarter moving average. There are eight key indicators that are used to generate the LIRA. They are:

• U.S. Census Bureau’s Retail Sales at Building Materials and Supplies Dealers
• National Association of Realtors’® Existing Single-Family Home Sales
• U.S. Census Bureau’s Single-Family Housing Starts
• CoreLogic’s Home Price Index (HPI)
• National Association of Realtors’® Existing Single-Family Median Sales Price
• BuildFax’ Residential Remodeling Permits
• The Conference Board’s Leading Economic Index (LEI®)
• Bureau of Economic Analysis’ Gross Domestic Product

You can find more on the LIRA and the JCHS by visiting http://www.jchs.harvard.edu/leading-indicator-remodeling-activity-lira