Home improvement projects decline with sagging economy
— -- After a surge in home renovations during the housing boom, new studies show homeowners are significantly curbing spending on such projects — adding to the unemployment facing construction workers and hurting home improvement businesses.
Spring is typically the big season for home remodeling, but this year's falloff will be felt across many kinds of related businesses, including contractors and architects, home furnishings stores and home designers.
Spending on home improvement projects is expected to decline at an annual rate of 12.1% by the third quarter, according to a report by Harvard University's Joint Center for Housing Studies. Spending isn't expected to pick back up until the economy recovers.
Total sales fell 4.5% to $290.5 billion in 2008, the second consecutive annual decline, according to the Home Improvement Research Institute. With housing markets still weak and consumer spending falling generally, the institute expects home improvement product sales to fall 6.4% more in 2009 to $272 billion.
The drop-off is being blamed on several trends. Fewer homes selling means fewer remodeling jobs. Home-equity lines of credit, which many homeowners used to tap to finance their projects, are harder to get because of the battering that lenders have taken from loan delinquencies.
Tumbling home values have left some owners uncertain about whether sinking money into expensive projects will pay off in higher resale prices.
"A lot of remodeling happens after someone buys an existing home," says Nicolas Retsinas, director of the Harvard Joint Center for Housing Studies. "With the drop-off in home sales, you're seeing a drop-off in remodeling."
A drop-off in home remodeling is having a major economic impact. It's taken a toll on the $306 billion remodeling industry.
The slowdown is hurting the construction industry, with companies laying off employees or partnering with complementary remodeling businesses to stay in business.
Related problems
Businesses related to home furnishings and remodeling are also suffering. Linens 'n Things, a specialty store specializing in home items, filed for bankruptcy last year. Home Depot saw a fiscal fourth-quarter loss of $54 million. And Lowe's fourth-quarter earnings dropped 60%.
