NEW YORK (AP) — General contractors and other small businesses in the home remodeling industry can expect revenue to slow in 2019, the result of rising mortgage rates and sluggish home sales.
That's the prediction of Harvard University's Joint Center for Housing Studies, which last week issued its quarterly report on home remodeling. The center's index of remodeling activity projects spending on renovations and repairs will gradually slow into the third quarter. Spending is expected to rise 7.7 percent in the current quarter compared to a year ago, and 6.6 percent in the July-September 2019 period.
A 6.6 percent gain is healthy, but it nonetheless is a sign that the remodeling boom of the past few years is waning.
Many homeowners renovate and make repairs before they sell and after they buy a house, but spending on remodeling has largely withstood a dip in home sales over the last year. Home sales have been hurt by an ongoing shortage of houses and apartments on the market. Existing home sales fell over 4 percent over the 12 months, the National Association of Realtors said Friday.
Rising interest rates are affecting both home sales and remodeling. Home mortgage rates are at their highest levels in more than seven years, with the 30-year mortgage close to 5 percent. Typical monthly payments are up 15.4 percent higher from a year ago, according to real estate data company Zillow, which calculates that it now costs about $118 a month more to buy the same house today than it did this time in 2017.
Many homeowners borrow to finance major home improvements, so rising rates may deter some of them from starting projects.
Homeowners' reduced spending was reflected in weaker sales last month of building materials and gardening equipment and supplies; they rose just 1.5 percent in September from a year ago, compared to a nearly 5 percent gain in August, according to the Commerce Department. That weakness will affect retailers, including small and independent stores, that sell those goods.
The slowdown may also continue past next year's third quarter. The Realtors said their pending home sales index fell 1.8 percent last month to 104.2. The index, which tracks signings of sales contracts, is down 2.3 percent over the past year.
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