In 2015, U.S. homeowners spent $221 billion on home improvement, maintenance and repairs, according to a report released Wednesday by the Harvard University’s Joint Center for Housing Studies (JCHS). The center estimates 2020 spending to reach $243 billion.
Including spending by rental property owners, JCHS reported total 2015 spending of $340 billion, and estimates 2016 spending totaled $361 billion, a 6% increase.
The report is good news for the nation’s two big home improvement retailers, Home Depot Inc. (NYSE: HD) and Lowe’s Companies Inc. (NYSE: LOW). Both companies reported better-than-expected quarterly results recently and both have offered strong guidance going forward.
There are several drivers for the booming home improvement market, according to the JCHS. Rising home prices and household incomes, aging housing stock and a pickup in household growth are the primary contributors.
Discretionary projects like kitchen and bathroom remodels and room additions, and outside attachments like decks, accounted for 40% of spending in 2007 (before the housing market collapse). By 2015 that percentage had dropped to 33%. Spending on repairs have risen from 40% to more than 50% in the same period.
Spending on home improvement has been concentrated in metropolitan areas, where home values and household incomes are high. In the 25 metro areas tracked by the JCHS, homeowners spent nearly $100 billion in 2015, about 45% of the national total on homeowner improvements. That’s an average of $3,400, about 15% more than the national average in 2015 of $2,970.
The JCHS expects average annual growth in home improvement spending of 2% a year for the next decade, with inflation-adjusted spending rising from $220 billion in 2015 to nearly $270 billion in 2025. Half the increase is expected to come from an increase in spending per owner, and the other half from growth in the number of homeowners. The JCHS projects a net increase of 13.6 million in the number of households over the next 10 years.
While the home improvement industry can expect solid opportunities for growth, and not just for stores like Home Depot or Lowe’s and local contractors, the solar and alternative energy industries continue to gain popularity as does the use of sustainable materials for building projects. Another area poised for growth is home automation, especially among younger households.
The main headwind will come from affordability. Home prices have now regained all their losses following the housing crisis, and they are continuing to rise as available inventory of homes for sales tightens. Interest rates, though still quite low, are once again ticking higher. Rising rents make saving for a down payment difficult as well.
The full JCHS study, “Demographic Change and the Remodeling Outlook,” is available here.