Mortgage Daily

Published On: November 4, 2002
Home Improvements Rise

Harvard study released

November 4, 2002


With mortgage rates low and home sales at record highs, home buyers are again investing in remodeling, according to the third quarter Remodeling Activity Indicator (RAI), devised by the Joint Center for Housing Studies at Harvard University.

As an indicator, the RAI is released quarterly and is derived from four components: manufacturers’ shipments of floor and wall tile products; retail sales at building materials and supply stores; sales of existing one-family homes; and the bank prime loan rate, the report said. It measures annual remodeling activity on a national level and also predicts annual rates of change, said Joint Center researcher Alvaro Martin Guerrero. It’s released two quarters before the U.S. Commerce Department’s data on residential improvements and repairs is available in order to provide industry with a reading of remodeling activity levels, the report said.

Despite the volatile stock market, homeowners spent an estimated $115.6 billion on remodeling from the fourth quarter 2001 through the third quarter 2002, the study found. That represents a 3.3% increase in remodeling activity since third quarter 2001.Residential remodeling and repair expenditures are at an all-time high, according to an announcement from The National Association of the Remodeling Industry. Projected total spending in 2002 is $163 billion, compared with $157.5 billion in 2001 and $150 billion in 2000.

In addition, the U.S. Department of Housing and Urban Development significantly improved a federal home improvement loan program in November 2001. The improvement beefed up protections for consumers while making the program financially stronger, according to The Home Improvement Lenders Association.

According to Freddie Mac’s latest quarterly refinance review, 45% of refinanced Freddie-owned loans resulted in cash outs during the third quarter. Some of the equity that is being taken out of housing is going back into investment in home improvements and renovations and consumer purchasing. In the first three quarters of this year, homeowners with conventional, conforming mortgages took about $59 billion in equity out of their homes, an annualized rate of about $80 billion the review said.

The Joint Center has been receiving calls from lenders and banks that have been putting out credit products on remodeling for home owners, said Guerrero. He said he thinks the RAI can be beneficial to lenders.

“It’s not 100 percent accurate, but it does show general trends,” he said. “In general terms, it’s gone well.”

This quarter’s study also found that the continued enthusiasm of remodeling reflects some improvements in the larger economy.

“Home improvement expenditures appear to have stabilized and begun a modest recovery,” said Joint Center director Nicolas P. Retsinas. “Recognizing strong home price appreciation, homeowners are making improvements in their most stable asset — their home.

The National Association of Realtors® reported that existing-home sales increased 1.9% from August to a seasonally adjusted annual rate of 5.40 million units in September, 7.8% above the 5.01-million unit pace in September 2001.

Kermit Baker, director of the Remodeling Future Program of the Joint Center, said remodeling appears to have avoided the recession, like home building.

“Low mortgage rates have produced record levels of home sales, and home buyers show a continued willingness to improve their homes,” he said.

The average contract interest rate for 30-year fixed rate mortgages decreased to 6.01% from 6.21% the previous week, according to the Oct. 30 Weekly Mortgage Applications Survey of the Mortgage Bankers Association of America. The record low was 5.84%, reported in the Oct. 2 survey.

The Joint Center is Harvard’s hub for information and research on housing in the United States. In 1998, it began analyzing the dynamic relationships between housing markets and economic, demographic, and social trends, providing leaders in government, business, and the non-profit sector with information to develop policies and strategies.

The RAI is released by the Joint Center during the third week after each quarter’s closing, the report said. The next release date is scheduled for Jan. 16.

Christy Robinson is the editor of She received a bachelor’s degree in news-editorial journalism from The University of Texas at Arlington. Her work has previously been published in The Dallas Morning News.

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