Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).
Harvard’s Joint Center for Housing Studies just released their quarterly Homeowner Remodeling Activity Report which forecasts low but steady growth over the coming year.
Click here for full sized graphic [pdf].
I expanded their chart back to 1995 using their historical data [XL]. It shows 2-3 year cycles of robust activity followed by a sharp drop in activity.
Click here for full sized graphic.
I always assumed their was a fairly close correlation between housing activity and remodeling activity over the past decade. As prices rise, activity increases due to either upgrading the home after purchase, or expanding and re-configuring homes as an alternative to buying a new one. I know in my home town, it seemed as though there were more homes being extensively renovated and expanded, than there were sales of new homes. However, my expanded chart shows a different pattern as far as I can tell.
The whole topic of remodeling brings to mind one of my pet peeve with repeat sales indexes. Advocates of this methodology say it is clearly better than looking at aggregate differences in prices since the index plots patterns of the same asset over time. However, in reality, repeat sales indexes rely on a false sense of continuity because tend to miss a significant characteristic of a changing housing market: Houses change a great deal. Houses get larger or their interiors are significantly improved upon in a large number of the transactions. The subsequent sale gets distorted because it may essentially be a different house.
but I need to digress…
While writing this post, I thought of Remake/Remodel. Did I dress like that in the early 70’s? (age check: I was 13) I must have remodeled since then.
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The relationship between remodeling and the housing bubble has been the subject of some debate on bubble blogs.
In the past, remodeling has picked up in housing busts. Those who might otherwise have traded up, but are not unable to sell, elect to remain put and remodel their existing home to meet their current preferences and requirements.
Typically in housing busts, construction workers displaced from new construction have found income in freelance remodeling.
There have been, however, reports of falling sales at Lowes and Home Depot. The new theory is that people have no savings, just greater and less levels of debt, and stagnating home prices mean there is no home equity to borrow against. So some believe remodeling activity will be going down.