Recession takes toll on remodeling activity

Remodeling expenditures by homeowners declined again in the fourth quarter of 2001. The drop in remodeling, according to the Remodeling Activity Indicator (RAI) devised by Harvard’s Joint Center for Housing Studies, reflects the slowing economy and reduced consumer spending. “While spending has not fallen off precipitously, we are in the midst of a modest downturn,” remarked Nicolas P. Retsinas, the director of the Joint Center. “In light of the reality of the recession, homeowners have begun to defer and cancel major housing renovations.”

Kermit Baker, director of the Remodeling Future Program of the Joint Center explains, “The unexpected strength that we saw in remodeling activity earlier this summer has dissipated. Growing unemployment rates, weaker consumer confidence figures, and recent rises in mortgage rates have slowed the sales of existing homes and purchases at home centers. The industry slowdown has led to a reduction in inventories, which in turn has produced lower levels of activities by manufacturers of home improvement products. Short-term interest rates remain very favorable, but this has not proven to be enough to turn around the industry. Trends in these indicators suggest that it may be a couple of quarters before growth in home improvement activity resumes.”

The RAI is regularly released by Harvard’s Joint Center for Housing Studies during the third week after each quarter’s closing – two quarters before the U.S. Commerce Department’s data on residential improvements and repairs is available – in order to provide industry with an accurate and timely reading of national remodeling activity levels. The next release date is April 18.