10-17-2013 02:45 PM

Harvard study predicts home-improvement slowdown amid rising interest rates, building costs


Remodeling spending is estimated to reach $140 billion in the third quarter, but dip by 15 percent by the end of the second quarter of 2014, according to a new survey.




U.S. investment in home remodeling is expected to increase at a double-digit pace in the next few months, although rising interest rates and building costs will ultimately cut into that growth by mid-2014, according to a new study by the Joint Center for Housing Studies at Harvard University.
Remodeling spending is estimated to reach $140 billion when results are tallied for the third quarter, that’s a 10.4 percent increase above the levels for the same period a year ago when spending hit $126.8 billion. For the first quarter of next year, Harvard researchers estimate spending will increase to $148.9 billion. But the number is expected to drop significantly on a year-over-year basis in the second quarter, falling to $147.9 billion. That would be a 15 percent drop compared to the same period in 2012.
Harvard researchers say in the near term, spending on home improvements is expected to see its strongest growth since the height of the housing boom, thanks to a combination of strong home sales and rising house prices that are helping homeowners rebuild equity lost during the housing crash. But analysts predict a cooling off by the middle of next year.
The report follows a recent rise in lending rates spurred by concerns that the Federal Reserve will tighten its monetary policies in the months ahead. In late August, the 30-year fixed mortgage rate popped to 4.58 percent — its highest level in two years. As recently as May, rates were in the 3.35 percent range. According to Wells Fargo, the 30-year rate was hovering around 4.5 percent as of Thursday.
"The soft patch that homebuilding has seen in recent months, coupled with rising financing costs, is expected to be reflected as slower growth in home improvement spending beginning around the middle of next year,” says Eric Belsky, managing director of the Joint Center, in a statement. “However, even with this projected tapering, remodeling activity should remain at healthy levels.”



Continue Reading >>