Annual expenditures for repairs and remodeling in owner-occupied homes are expected to decline in the first half of 2024, according to the Leading Indicator of Remodeling Activity for the second quarter (LIRA).
Annual increases on a percentage basis reached their peak in the third quarter of 2022, with spending rising 17.4% above the third quarter of 2021. Since then, quarterly gains on an annual basis in repair and remodeling expenditures have declined each quarter.
In the first quarter of next year, dwindling gains are projected to transition to year-over-year declines (see chart).
The LIRA projects year-over-year spending on homeowner repair and remodeling to gain 5.0% in the third quarter of this year and 2.8% in the fourth quarter before declining 2.7% in the first quarter of 2024 and 5.9% in the second quarter.
High interest rates cause strong headwinds in the property sector
“Home remodeling activity continues to face strong headwinds from high interest rates, softening house price appreciation, and sluggish home sales,” said Abbe Will, associate project director of the Remodeling Futures Program at Harvard University. “Annual spending on homeowner improvements and repairs is expected to decrease from $486 billion through the second quarter of this year to $457 billion over the coming four quarters.”
This week, Freddie Mac reported the average 30-year US mortgage interest rate had increased to 7.23%, the highest since June 2001 and significantly higher than the low of 2.65% in January 2021. The higher rates will negatively affect home affordability, which the National Association of Realtors reports has fallen for five consecutive months.
“The ongoing reductions in household moves will cause a decline in the remodeling and repair activity that typically occurs around the time of a home sale,” said Carlos Martín, project director of the Remodeling Futures Program. “The magnitude of the impact may be offset if owners who are locked into their current homes with ultra-low mortgage rates continue to renovate to meet changing needs or take advantage of new federal incentives for energy-efficiency retrofits.”
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