Home Improvement Spending Takes a Breather

Spending on remodeling projects will hold steady through the first several months of next year, says a report released last week by the Joint Center for Housing Studies at Harvard University.

“Home owners continue to draw on built-up equity in their homes to finance home improvements,” says Nicolas P. Retsinas, director of the Joint Center. “However, the pace of spending remains moderate and tempered in the context of a very soft housing market.”

According to the report, growth in home-improvement spending will likely remain constant at an annualized rate of about 3 percent through the first quarter of 2008. The study cites falling sales of existing homes and restrained return on remodeling investments.

“With borrowing costs remaining favorable, though, owners are still able to take advantage of the run-up in their house’s value over the past decade to finance home improvement projects,” says Kermit Baker, director of the Remodeling Futures Program of the Joint Center.

In fact, now could be a good time for a home owner to remodel. Since January, overall prices of construction materials and components have been rising at a modest 2 percent to 3 percent from year-ago levels, according to data compiled by Fitch Ratings. That’s significantly lower than the 4 percent to 8 percent increases that have been common in the last few years.

Remodeling lags home building trends by about six months, says Michael Nagel, chairman of the National Association of Home Builders’ Remodelers group. According to him, what's helping to keep the remodeling market growing at a slow pace is home repairs that can't be put off.

Source: Joint Center for Housing Studies; Investor’s Business Daily, Marilyn Alva