If you wish to study the trajectory of the economy and the health and vitality of consumers, remodeling and renovation spending can be revealing. When incomes are rising, interest rates are low, unemployment is down, and real estate is appreciating, Americans respond by pouring money into their homes.

When these factors reverse, so do homeowners: Renovation projects dry up and people go into conservation mode.

When you recognize this relationship between home renovations and the state of the economy, the situation in the summer of 2019 becomes especially interesting. Remodeling and renovation spending is up at the moment, but could the predictive models be suggesting a slowdown in 2020?

Data Shows Home Renovation Spending is Up … But Could Slow

According to a 2019 study of more than 1,300 U.S. homeowners, Trulia reports that 90 percent of them plan to remodel their home at some point in the future (which is up from 84 percent in 2018). Roughly 40 percent have plans to do so this year.

In addition, though, only 17 percent of homeowners who plan to remodel within the next two years also hope to sell within that time frame. This suggests the majority of spending on home renovations is driven by personal pleasure and goals.

Of the homeowners planning to remodel, roughly half (47 percent) are only willing to spend less than $5,000. One in five is willing to spend more than $10,000.

While home renovation spending is in a historically healthy position, the horizon looks more uncertain. According to the Leading Indicator of Remodeling Activity (LIRA) – a report that’s developed by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University – annual gains in homeowner expenditures for improvements and repairs will shrink from 6.3 percent in Q3 2019 to a paltry 0.4 percent by Q2 2020.

The anticipated collapse of home improvement spending is tied to an array of factors, including declining home sales and home building, slower gains in permitting for remodeling projects, wage stagnation, and uncertainty over the future of the economy.

However, even if home renovations were to stall in the middle of 2020, plenty of evidence suggests this might be little more than a momentary pause in an otherwise healthy market. According to economists in a Reuters poll, the U.S. Federal Reserve is finished with raising interest rates until the end of 2020 (and possibly beyond).

In fact, they say there’s a 40 percent chance of at least one rate cut between now and then. If the Fed does indeed keep interest rates low, this will almost certainly be reflected in 30-year mortgage rates.

Low and/or falling rates encourage home sales and refinancing, and also provide ammunition for homeowners who want to remodel and upgrade.

The Remodel Projects Homeowners Want to Invest In

Although there’s uncertainty about the future of home improvement projects, one thing is clear: Homeowners have continued to open their wallets in 2019.

Here are some of the ways they’re spending money:

  • Garage door replacement. Believe it or not, very few home improvement projects command a better ROI than garage door replacement. Done well, a this allows the average homeowner to recoup nearly 100 percent of the initial investment.

 

  • Minor kitchen remodel. The kitchen is the biggest money room inside the house. When visitors and/or buyers walk into a home, it’s the first thing they examine. We aren’t seeing as many major kitchen remodels in middle-class neighborhoods, but minor remodels remain popular. These include painting cabinets, replacing hardware, upgrading countertops, and adding backsplashes.

 

  • Fireplace add-on. For homes built without a fireplace, a fireplace add-on is an appealing option. The most cost-effective option is to install an electric fireplace, which is comparatively inexpensive, simple to set up, and surprisingly eco-friendly.

 

  • Deck addition. Outdoor living space appeals to almost every homeowner or buyer. Whether you’re planning to sell within the next couple of years or stay in residence, a deck addition is a smart investment. It allows homeowners to maximize the property. Financially, people are able to recoup 75 percent or more of the up-front cost.

 

  • Room repurposing. Thousands of homeowners are investing in room repurposing projects. Whether that’s finishing out attic space or converting a bonus room into a bedroom, such projects have the ability to transform the entire house.

At the same time, certain projects are not receiving as much funding from homeowners lately. They include in-ground swimming pools, sunroom additions, whirlpool bathtubs, chef-inspired kitchens, and intricate landscaping.

Optimism for the Future

When the economy booms, many people appear to grow wary of a slowdown. This seems to be the position we’re in at the moment.

All the data suggests that home remodeling and renovation projects are holding steady, but there are whispers of potential decline and stagnation in 2020. Whether that will definitely happen remains to be seen, though.

At the moment, plenty of homeowners continue to spend, and the economy barrels forward like a steam-powered locomotive making up for lost time.