Like an extreme theme-park rollercoaster, the U.S. housing market has dipped and turned and raced and plummeted over the past decade. And, when the housing market crashed in 2007, it was not surprising that home improvement spending also declined. Ten years later, the overall housing market is stable, but the construction of single-family homes has been very slow to recover. As detailed in the April edition of the Retail Industry Briefing Book, single-family housing starts hit 872,000 in February; up slightly from January’s figures, but still sitting below pre-recession levels.
The home-improvement industry however, has fared much better in the aftermath of the housing market bust and economic recession. As seen on page 27 of the April RIBB, the Leading Indicator of Remodeling Activity (LIRA) compiled by the Joint Center for Housing Studies (JCHS) at Harvard University “projects that annual growth in home improvement and repair expenditures will remain elevated throughout 2017 with spending levels ending the year up 6.7 percent at $317 billion.”
In their January 2017 report Emerging Trends in the Remodeling Market, the JCHS further explains that the more than 130 million homes in the United States require regular investment to offset normal depreciation. And, many households that might have traded up to more desirable homes during the recession decided to make improvements to their current homes instead. In addition, federal and state stimulus programs encouraged homeowners to invest in energy-efficient upgrades that they might otherwise have deferred.
“Growth in home prices is continuing at a healthy pace and encouraging homeowners to make remodeling investments,” says Chris Herbert, Managing Director of the Joint Center for Housing Studies.
That’s great news for home improvement stores like The Home Depot and Lowes. As seen on page 39 of the April RIBB, The Home Depot’s closing stock price is up 10% year-to-date and Lowe’s stock price is up 16% year-to-date. And, as detailed on page 34 of the RIBB, using data compiled for the Accelerated Analytics Vendor Index, dollars sold per week in 2017 is consistently greater than the same week in 2016 for The Home Depot and Lowes.
Sources: JCHS, wsj.com
The National Association of Realtors announced Wednesday that previously owned home sales in February grew 3% over the previous month. Sales versus February of last year were up 1.1%. This comes after a two month drop in sales in January and December. The change in February eases concerns that the housing market had peaked. However, the market appears to be shifting from new home sales to previously owned home sales. Demand for previously owned homes is rising due to increased mortgage rates and higher home prices, which happen when other parts of the economy improve. The national median home price rose to $241,700, and the average interest rate for a 30-year, fixed-rate mortgage are now at 4.4%. Previously owned homes are seeing the higher demand and a smaller availability, with those current homeowners wary of selling and getting into a new home with higher rates. Builders are ramping up construction but are struggling. Total US housing starts in February declined 7%.