Home Remodeling Rebound in Progress According to Harvard Study
On April 15, 2010, Harvard’s Remodeling Futures Program at their Joint Center for Housing Studies indicated that a home remodeling rebound is now underway, according to their LIRA (Leading Indicator of Remodeling Activity). This announcement should be welcome news for all Americans, since much of the United States’ economy depends on a healthy housing construction market.
“Home improvement spending will recover this year,” reported the study. Housing improvement spending is recovering this year, and the dramatic change will become visible during the 3rd quarter, with even greater spending on residential improvements forecasted for the the 4th quarter of 2010. This appears to be a trend, indicating that Warren Buffett’s predictions of a housing market recovery occurring during 2010 and residential market problems being “largely behind us” by early 2011, to be correct.
The Joint Center for Housing Studies of Harvard University produced a graph of Homeowner Improvements, in billions of dollars, starting at the 1st quarter of 2007 and going through all of 2010. Harvard’s data and projections indicate that we are now in the midst of the first housing improvement spending upswing since the end of 2006, which will be sustained through the end of 2010 and likely well into 2011, if the graph can be interpreted as a trend upward for the long term.
The report also stated that house prices are “showing modest gains,” and that the employment situation is starting to equalize. This recovering equilibrium is the incentive most residential owners have been waiting for to invest in their houses and make desired improvements, according to Kermit Baker, the director of the Remodeling Futures Program at Harvard. He said that “Home sales are trending up, which shows growing confidence in the housing market.”
Americans have been needing a real cause for optimism, for believing that the residential sector will rebound, and this is part of it. Warren Buffet’s own prediction for a housing market rebound during the course of 2010, made in late February of this year (2010) in his annual letter to his shareholders, is turning out to be nothing short of a valid crystal ball. Once again, Mr. Buffet is right about the residential market in America. No doubt his organization has access to the same data as Harvard. And the time frame predicted by Buffett parallels Harvard’s Joint Center for Housing Studies forecast as well, with the bulk of the recovery occurring during 2010. Harvard’s study has a sharper focus to the remodeling recovery prediction, citing actual amounts indicated that will be spent in each quarter to improve American’s houses.
The last quarter of 2010 is projected to be actually better than the 3rd quarter of 2008, estimated at somewhere between the amounts spent during the 2nd and 3rd quarters during 2008 for residential remodeling. This bodes well for Americans in all sectors, including those whose livelihoods depend on residential design and construction. Appliance manufacturers, home construction product suppliers, contractors, electricians, air-conditioning and plumbing subcontractors, and a host of other trickle-down links to the housing market will breathe a big collective sigh of relief. No doubt part of the long-awaited improved correction has depended upon the absorption of the over-supply of houses built in excess of demand since the 2008+/- era.
The excessive exuberance exhibited by investors in housing construction (treating housing as solely an investment vehicle rather than as their own family’s shelter) was likely responsible for much of the present woes. They built about 66% more houses than Americans could consume for about 2 to 3 years, resulting in an unfortunate glut on the housing market exceeding the immediate ability of the economy to purchase them. Only now, after the unfortunate devaluation of millions of houses built in this over-supply mode, has America finally been able to begin to snap up the bargain residences, many facing foreclosure. So, now begins the equalization of the market and this is in part signaled by the housing improvement industry.
This is very good news for the housing industry in America. Data for the Harvard study comes from a combination of U.S. Census Bureau information for the past statistics and the LIRA forecast for the future anticipated progress.
The housing remodeling market cratered during the second quarter (now) at $106.5 billion spent on housing improvements, a quarterly decrease of -9.7%. The study projects the housing renovations will increase to $111.0 billion in the 3rd quarter of 2010, the first increase in housing improvement spending since the end of 2006. The study projects further increases in the 4th quarter of 2010: to $121.5 billion, continuing the upward trend.
LIRA was created to forecast national spending by house owners for the current quarter and the next 3 quarters. There is a LIRA information release update in the 3rd week after the close of each quarter. Harvard began the Joint Center for Housing Studies in 1959, so their data is some of the most historically dependable available in the United States on this subject. They track trends in America’s housing improvement industry. The Harvard program also studies linkages between residential improvements to the entire residential construction market.