19.10.2007 05:00 - category: Real Estate: Real Estate Industry
Forecast: Fewer refinished kitchens
A new study shows that home renovations will decline along with housing markets.
By Les Christie, CNNMoney.com staff writerOctober 18 2007: 11:43 AM EDTNEW YORK (CNNMoney.com) -- Americans will spend less on home renovations in 2007 than in recent years, according to a report from the Joint Center for Housing Studies at Harvard University.
Weak home prices and flagging consumer confidence are expected to take their toll on renovation activity, which is forecast to decrease for the first time since 2003.
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The Joint Center, which has tracked renovations since 1998 in its Leading Indicator for Remodeling Activity, expects a decline of 2.3 percent for all of 2007 compared with 2006.
"As homeowners become increasingly concerned about falling house prices and a slowing economy, home improvement spending is dragging. Coupled with very modest home sales, spending levels are likely to fall," Nicolas Retsinas, the center's director, said in a statement.
Retsinas pointed out that the liquidity squeeze that gripped credit markets starting in July put a damper on cash-out refinancing activity, one of the prime methods home owners use to fund big renovation projects.
Home-price declines also affect consumer spending less directly, by eroding the "wealth effect," the feeling of confidence that high home prices boosted during the boom.
The center predicted the decline will continue through at least the first half of 2008 with spending expected to drop 4.2 percent during the three months ending June 30, 2008.
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