Remodeling 2018: Keep your eye on fly-over metros
Friday, January 19, 2018 by Floor Covering Weekly
Spending on home improvements likely increased around 5.5 percent this past year, marking the seventh straight year of growth for this industry, and the fifth straight year that gains have been at or above the long-term growth trend. Given the extended solid performance for home improvement activity, and growing nervousness that we may be nearing the end of this economic cycle, many are taking a cautionary approach for this coming year.
However, while other parts of the economy are slowing down, the owner side of the housing market is accelerating. Single-family housing starts likely increased almost 10 percent this past year, sales of existing single-family homes probably will exceed five million for the first time since 2006, and house prices have been growing at a 5 percent to 6 percent pace all year, recently surpassing levels they were at before the housing bust. The Leading Indicator for Remodeling Activity (LIRA), developed by the Joint Center for Housing Studies, is projecting that home improvement spending will climb almost 7 percent in 2018, resulting in spending exceeding $400 billion nationally.
Historically, strong remodeling activity has been paced by gains in the major coastal markets, and particularly in areas with high household incomes and strong house prices. In 2015, when national spending on home improvement projects averaged just under $3,000 per owner, those in New York (the top spending market nationally), Washington, DC, and San Francisco on average spent close to twice as much. Not surprisingly, these three metros, along with Los Angeles, have the highest house prices nationally.
The Joint Center has recently applied its national LIRA projection methodology to metro areas. Their conclusion is that these high income/high house price metros will not top the list for strong growth in home improvement spending this coming year. Given generally healthy housing market conditions, most metro areas are projected to see solid gains in home improvement spending, with 14 of the 50 largest markets nationally projected to see double-digit growth.
However, these metros with projected strong growth are concentrated in two areas of the country, the industrial Midwest and the South Atlantic region, with two additional markets on the list in the Northeast. The Midwest metros — Milwaukee, Columbus, Kansas City, Minneapolis/St. Paul, and Indianapolis — generally have an older housing stock and have seen slower population growth in recent decades. In contrast, the South Atlantic metros — Richmond, Charlotte, Atlanta, Nashville, Jacksonville, Orlando, and Tampa — have generally seen more rapid population growth recently and therefore tend to have a newer housing stock.
What all of these projected high growth metros have in common is that they generally have more affordable housing. Being more affordable, not only are more households able to purchase homes, but those that purchase also are able to improve that home after they buy it.
Kermit Baker is the senior research fellow for the Joint Center of Housing Studies at Harvard University. He may be reached via e-mail at [email protected]