Remodeling Industry Poised for Growth as Economy, Housing Markets Stabilize

Slowly but surely, the U.S. home improvement industry is emerging from its worst downturn since the government began tracking spending in the early 1960s. Homeowners who deferred maintenance and improvements during the recession may soon start to spend more freely. Lower household mobility in the wake of the housing market crash could also mean that homeowners will focus on upgrades with longer paybacks, particularly energy-​efficient retrofits. 

The industry is also beginning to benefit from spending on the rehabilitation of foreclosed properties. Over the coming years, real spending on homeowner improvements is expected to grow at a 3.5% average annual pace, ensuring that the industry captures a large share of the residential investment market.

Many specialty contracting firms—kitchen and bath remodelers, deck and patio builders, energy-​retrofit experts, and outdoor living contractors, among others—have survived one of the worst industry downturns in decades by streamlining their operations and becoming more focused and efficient. Still, the ease of entering and exiting the industry, and the relatively high rate of failures, ensure the industry will remain dominated by small firms and self-​employed contractors.


Homeowner improvement spending is concentrated among a relatively small number of metropolitan areas. Income and house prices are key determinants of improvement expenditures per homeowner, and high-​income households and highpriced homes are typically located in large metros. Indeed, over the past decade the top 10 metro markets were home to just 22% of homeowners but accounted for 31% of total homeowner improvement spending (defined here as net of routine maintenance expenditures). The top 35 metros were home to 43% of homeowners but accounted for nearly 55% of spending.

Homeowners in metro areas of the Northeast and Midwest, as well as coastal California, have higher incomes and more expensive homes—characteristics that boost remodeling spending. However, metro areas in the South and West have generally seen stronger growth in home building, increasing the stock of homes that need upgrades and improvements. A growing share of homes in Sunbelt metros is also entering the age range (20–30 years old) when homeowner improvement spending is usually strong.

As a result, high-​growth remodeling markets have recently been concentrated in key Sunbelt states. The housing bust and subsequent recession, however, have temporarily disrupted regional spending patterns. Of the 20 states with increases in gross domestic product in 2009, only 7 were in the Sunbelt. The traditionally fast-​growing states of California, Texas, and Florida all saw major declines in GDP last year. As
long as these housing markets remain depressed, the major metropolitan areas of the Northeast and Midwest are likely to gain a growing share of home improvement spending.

As the economy and the housing market return to more normal conditions over the next five years, so too will homeowner improvement spending. With concern over environmental sustainability growing and home energy costs expected to rise in the years ahead, spending on green remodeling projects in general—and energy-​efficient retrofits
in particular—should see healthy gains. In addition, immigration
is expected to recover, ensuring that foreign-​born households account for a large share of net new households. As these households age into their peak remodeling years (mid-​30s to mid-​50s), they will support further growth in improvement spending.

Obviously the condition of the broader economy, the pace of house price appreciation, mobility rates among homeowners, credit market conditions, and other factors will greatly influence the amount of home improvement activity in any particular year. Nevertheless, the long-​term expansion of the remodeling market is an unmistakable trend, and a relatively healthy economy will assure future growth in the industry.

[Source:  "A New Decade of Growth for Remodeling."  Joint Center for Housing Studies at Harvard University.  January 2011.  Web.  20 Jan. 2011.]