When the Great Recession took its toll nearly 10 years ago, many people doubted that the housing market would ever fully recover. But as of 2016, national home prices finally surpassed the pre-recession peak, according to the Joint Center for Housing Studies of Harvard University. While that’s great news for the housing market, the new issue is one of supply and demand.
“While the recovery in home prices reflects a welcome pickup in demand, it is also being driven by very tight supply,” said the Center’s Managing Director Chris Herbert in a statement. “Even after seven straight years of construction growth, the U.S. added less new housing over the last decade than in any other 10-year period going back to at least the 1970s. The rebound in single-family construction has been particularly weak. Any excess housing that may have been built during the boom years has been absorbed, and a stronger supply response is going to be needed to keep pace with demand — particularly for moderately priced homes.”
As a result, tight inventories in many parts of the country are impacting remodeling activity. In the Center’s most recent Leading Indicator of Remodeling Activity (LIRA) report, Herbert shares that most remodeling projects happen shortly after a home sale. Thus, lower housing inventory equals fewer home sales, which leads to less remodeling. But not to worry — the housing market is strong enough to support a healthy remodeling industry. The LIRA report projects that annual increases in remodeling expenditures will soften but still remain at 6 percent or higher through the second quarter of 2018.
“Even with some easing this year, the remodeling market is still expected to grow above its long-term average,” said Abbe Will, Research Associate in the Remodeling Futures Program at the Joint Center, in a statement. “Over the coming 12 months, national spending on improvements and repairs to the owner-occupied housing stock is projected to reach fully $324 billion.”
Much of the remodeling activity is expected to revolve around kitchens and bathrooms, as has been the trend for years. Walk-in showers and luxury vinyl tile projects are some of the newer investments that homeowners are making. However, the aging baby boomer generation is also set to drive up investment in universal design projects. Universal design focuses on making a home more accessible and easy to use. Therefore, remodeling projects could include things like adding a bedroom and full bathroom to the first floor to eliminate having to climb stairs; widening doorways to accommodate wheelchairs and walkers; and adding handrails in showers or tubs to make bathing easier. Radiant heating can also be installed to bring supplemental heat to bathrooms and other rooms to help ease aching joints.
As the baby boomer generation looks to age in place, remodeling activity is expected to experience an uptick. And as more and more millennials enter the workforce, the demand for rental housing and entry-level homeownership will skyrocket, leading to further remodeling growth. That means in the next few years, the U.S. housing market better be ready to increase its inventory and contractors should be primed for an increase in work. Remodeling growth might not be changing much in the next year or so, but its time is coming!