The shining star of the retail world over the past few years has been the home improvement/do-it-yourself segment, led by twin powerhouses Home Depot and Lowe’s. While other sectors of retailing have struggled or posted meager gains, this channel has been robust, fed by both a resurgent housing market and homeowners looking to fix up their current places.
But now, new findings from a Harvard University research study indicate that this may change – and for the worse – starting very soon. The Leading Indicator of Remodeling Activity, developed by Harvard’s Joint Center for Housing Studies, is forecasting that renovation and maintenance spending will decline over the next year for the first time in a decade. Though the sector has been experiencing 5-7 percent increases fairly consistently since the housing recovery following the Great Recession of 2008-2009, the Harvard study says the slowdown has already begun and will result in a 0.3 percent decline by next spring.
“We have some reason to believe this may be a turning point in the cycle for home remodeling,” said Abbe Will, Associate Project Manager for the Harvard Remodeling Futures Program. She hedged a bit, though, adding, “but it could be a hiccup.”
Much of what happens, naturally, depends on housing prices, construction and mortgage rates, and it should be noted that this study was released before the most recent cut in the prime rate by the Federal Reserve in late October. And so far, stock prices of some of the bigger players in the business, like Depot and Lowe’s, are continuing to do well, if not quite growing at previous rates. Indices that include other companies in the sector, like furniture producers, lenders and timber companies, have also been up year-to-date.
Forecasts for a slowdown in the home improvement sector would be consistent with overall predictions for a possible recession for the entire economy in 2020, even though short-term indicators suggest no signs yet.
For lighting producer who depend on both the new housing and home remodeling markets, it is a delicate balance. Those who pull back too quickly might miss a continued run-up in business, while those that continue to produce and buy at previous rates could end up with excess inventory on their shelves.
Skeptics of the Harvard model point to its inflexibility to recognize ever-changing mortgage rates and consumer confidence levels. As always, companies in the business of supplying the housing market need to take into account all the information available at any given time. A little bit of luck always helps, too.