Remodeling growth due for a drop, sending mixed market signals

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Forecasts for residential remodeling growth are looking dimmer, but this isn't necessarily a bad thing for the mortgage market.

Residential home improvement volume has been holding relatively steady, but should slow considerably by mid-2020, according to the Joint Center for Housing Studies of Harvard University.

While this could mean fewer homeowners ready their homes to sell, it could also signal the opposite. Mortgage rates are down and inventory is loosening slightly, which could incentivize more residents to explore what's on the market rather than aging in place.

Market movement would certainly be an upside for an industry seeing lagging activity, but what's in store for housing is still to be determined. Between May and June, homeownership tenure, which affects the supply portion of the home sales equation, grew 0.7%, according to First American Financial Corp. This contributed to a loss of 33,000 potential home sales.

"Declining home sales and homebuilding activity, coupled with slower gains in permitting for improvement projects, will put the brakes on remodeling growth over the coming year," Chris Herbert, managing director of the Joint Center for Housing Studies, said in a press release. "However, if falling mortgage interest rates continue to incentivize home sales, refinancing, and ultimately remodeling activity, the slowdown may soften some."

The Joint Center's Leading Indicator of Remodeling Activity model has been adjusted to reflect an estimated $331 billion will be spent on residential remodeling this year, instead of the previously projected $353 billion for 2019. Similar revisions were made to prior years.

"Spending in 2016 and 2017 was not nearly as robust as expected, growing only 5.4% over these two years compared to 11.9% as estimated," said Herbert.

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