The United States home improvement market has grown to nearly $250 billion, according to a new report released by the Joint Center for Housing Studies’ Remodeling Futures Program. Fueled by the home-ownership boom, as well as strong income growth among high-earning households, improvement spending has climbed steadily for a decade.
“Households with incomes of $120,000 and up have been responsible for some 60 percent of the growth in spending since 1995,” said Nicolas P. Retsinas, Joint Center director. “The most popular types of projects are high-end improvements, such as major kitchen or bath remodels or room additions. Households spending at least $25,000 on improvements accounted for almost one-third of all remodeling expenditures in 2003.”
The most recent report in the Improving America’s Housing series, “The Changing Structure of the Home Remodeling Industry,” examines significant demand and supply shifts. While the baby boomers still account for the majority of the market, members of Generation X – which includes millions of foreign-born and minority households – are moving rapidly into home ownership. These younger, more diverse homeowners are now reshaping the mix of demand for remodeling projects.
“Gen X-ers already rival baby boomers in per-household spending,” said William C. Apgar, senior scholar at the Joint Center for Housing Studies. “Over the past decade, minorities in general, and Hispanics in particular, have become a rapidly growing market segment.”
The report also accesses changes in the structure of the remodeling industry. While the home improvement industry has come into its own as a major force in the U.S. economy, its organizational structure is locked in the past. “To achieve its growth potential,” said Kermit Baker, director of the Remodeling Future Program, “the industry must ensure that manufacturers and distributors of home improvement products, as well as firms providing financing to this segment, continue to serve its contractor base.”
The home improvement market is poised for further expansion. To ensure this growth, however, remodeling contractors will have to respond strategically to the increasing importance of the high-end market and changes in the way building products are distributed. Certain near-term threats – a sharp drop in home prices, a spike in mortgage rates, or a dramatic slowdown in home sales – could also put a damper on spending.
“While these risks do bear watching, they are easily exaggerated,” Retsinas said. “Continued growth in home ownership, along with record levels of income and wealth, make it much more likely the remodeling sector will be able to sustain 3 percent average annual real growth over the next decade.”
The Joint Center for Housing Studies of Harvard University analyzes the dynamic relationships between housing markets and economic, demographic, and social trends, and aims to provide leaders in government, business, and the non-profit sector with the knowledge needed to develop effective policies and strategies.
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