Home remodeling activity is projected to climb again after a short downturn. The Leading Indicator of Remodeling Activity, published quarterly by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University, tracks where the market is headed, and its late 2024 release pointed to renewed growth through the third quarter of 2025. For homeowners and contractors, that forecast shapes bidding calendars, material orders, and financing decisions. Before any wall comes down, crews also have to plan the mess, and quick and effective dust containment often determines whether a renovation stays neighbor-friendly and on schedule.
What the Remodeling Forecast Actually Says
The LIRA projects that annual expenditures for home renovation and maintenance will grow by 1.2% through the third quarter of 2025. In dollar terms, annual spending moves from about $472 billion in the third quarter of 2024 to roughly $477 billion in the third quarter of 2025. The projection follows a mild pullback over the previous year, and the report describes the expected rise as a quick return to growth after a fairly modest downturn.
The program attributes the turnaround to the housing market itself. A continued thaw in new home construction and sales of existing homes supports an uptick in residential improvement and repair work, while stronger gains in home values, and therefore home equity, boost both discretionary projects and need-to-do replacements for owners staying in place.
The LIRA is a leading indicator, which means it projects spending roughly two quarters ahead based on permits, home sales, and remodeling activity. It does not measure past spending; it signals where the market is heading. That is why contractors watch it before committing to new hires, and why lenders and suppliers use it to plan inventory and credit lines.
Projected Spending: $472 Billion to $477 Billion
The report puts the scale in context: annual spending for home improvements and maintenance is projected to grow from $472 billion to $477 billion through the third quarter of 2025. A quick return to growth after a fairly modest downturn means residential remodeling and repair expenditures are expected to approach past peak levels as the recovery takes hold.
The forecast matters because remodeling moves in cycles, and the timing of those cycles determines how busy contractors are and how much competition homeowners face for skilled crews. Structural work such as staircase design, construction, and remodeling tends to move with the broader renovation cycle, so a rising market means longer lead times for specialized trades.
The Numbers Behind the Recovery
The quarterly data behind the LIRA shows how sharply the market shifted. Year-over-year spending growth accelerated from 12.0% in the fourth quarter of 2021 to a peak of 17.2% in the third quarter of 2022, then softened steadily to 2.1% by the fourth quarter of 2023. Spending declines in 2024 reached a bottom at -3.2% in the third quarter of 2024, and the projection calls for a return to 1.2% growth by the third quarter of 2025.
How to Read the Quarterly Data
These figures are four-quarter moving sums, which smooth out seasonal swings and make the underlying trend easier to read. The pattern, a boom, a softening, a shallow dip, and a projected rebound, tells contractors to staff for a busier 2025 and tells homeowners that waiting for prices to collapse is the wrong bet.
The 2022 peak followed a stretch of low interest rates and pandemic-era savings that pushed homeowners into larger projects. As mortgage rates climbed, the mix shifted from big discretionary renovations toward smaller repairs, which is why the downturn stayed shallow compared with earlier cycles. The projected rebound reflects the same forces running in reverse: more home sales, steadier prices, and owners who delayed work deciding to proceed.
| Period | Year-over-year change | What it signals |
|---|---|---|
| 2021 Q4 | +12.0% | Post-pandemic boom in renovation spending |
| 2022 Q3 | +17.2% | Peak growth of the current cycle |
| 2023 Q4 | +2.1% | Steady softening as interest rates rose |
| 2024 Q3 | -3.2% | Bottom of the downturn |
| 2025 Q3 projected | +1.2% | Recovery toward past peak levels |
Spending at this scale spreads across every corner of the industry. The size and complexity of a job determine whether a homeowner hires a kitchen remodeling contractor or manages the work with a generalist crew, and both options get busier when the market expands.
Home Equity, Values, and the Decision to Remodel
The mechanism behind the projected growth is equity. When home values rise, owners gain borrowing power and confidence, and both push renovation decisions forward. That is why the LIRA report points to gains in home values and home equity as the fuel for discretionary upgrades and need-to-do replacements alike.
Funding Options for Renovation Work
Homeowners typically fund remodels through savings, home equity lines of credit, cash-out refinancing, or a combination. Equity-based financing is attractive because interest rates on secured debt run below unsecured options, but it also puts the house at risk if payments slip, so the choice deserves the same care as the construction contract.
Contractors see the equity effect directly in the projects they bid. Owners who finance through a home equity line often approve larger scopes, while cash buyers tend to trim. Lenders require appraisals and documentation, so owners should sort out financing before demolition starts rather than mid-project, when every week of delay adds holding costs.
Budgeting discipline matters most at the end of a job, when change orders and final billing decide whether a project finishes on budget. Owners who track every modification in writing and approve pricing before work proceeds avoid the surprise invoices that sour otherwise successful renovations.
Where Remodeling Dollars Are Likely to Go
Recovery markets reward a specific mix of projects. Discretionary upgrades lead when equity is rising, while need-to-do replacements hold steady regardless of sentiment because they cannot be postponed forever. The categories that capture most of the spending:
- Kitchen and bath renovations, the top spend category in most markets
- Lighting, hardware, and finish upgrades that refresh rooms at lower cost
- Replacement roofs, windows, and HVAC driven by age and condition
- Accessibility and aging-in-place work supported by home equity
Kitchens and Baths Keep Their Lead
Kitchen and bath projects consistently capture the largest share of remodeling spending because they deliver the most daily use and the strongest return at resale. A midrange kitchen remodel typically recovers a large portion of its cost at sale, and bath upgrades rank close behind. Contractors report that these two rooms are also where owners are most willing to trade up on materials.
Lighting and Finishes Move the Perception
Lighting is one of the fastest ways to change how a room feels, and home remodeling lighting design trends now favor layered schemes with task, ambient, and accent fixtures rather than a single ceiling light. Finish upgrades, hardware, trim, and paint deliver visible results at a fraction of a full gut renovation.
The distinction between discretionary and replacement work matters for planning. An owner who wants both a new kitchen and a new roof faces different urgency for each, and the roof usually wins the schedule even when the kitchen wins the budget.
Timing a Renovation in a Recovering Market
In a recovering market, the cheapest contractor is the one booked early. Demand rises faster than crew capacity, so lead times stretch from weeks to months. Homeowners who lock in a start date before the busy season typically pay better prices and finish before the fall.
Booking Early in a Busy Year
Material prices follow demand too. Lumber, drywall, and fixtures all tighten when renovation spending climbs, and forecasts for modern residential renovation projects routinely factor in material inflation. Buying fixtures early, even before demolition starts, protects against price jumps and backorders.
A phased approach spreads cost and disruption. Do the structural work in year one, finishes in year two, and outdoor improvements in year three, and each phase funds the next. That pattern matches the data, because owners staying in place tend to renovate in waves rather than all at once.
Contractors who track the LIRA use it to decide when to hire. A projected upturn justifies adding a crew and booking material slots; a downturn signals caution on inventory. The same national forecast that guides a large remodeling firm works at the scale of a two-person crew, because local demand follows the same interest rates and home values.
Practical Steps for Homeowners and Contractors
A Six-Point Preconstruction Checklist
- Set the scope in writing before any bids, with a list of must-haves and nice-to-haves
- Get at least three bids and compare line items, not totals
- Check licensing, insurance, and references before signing
- Build a contingency of 10-20% into the budget for surprises behind walls
- Verify permit requirements with the local building department and schedule inspections
- Put every change order in writing with price and timeline before work proceeds
Contractors can use the forecast the same way: book material orders early, hold deposits for 2025 starts, and staff up ahead of the spring rush. The full set of strategies for successful renovation projects covers scheduling, communication, and quality control, and the payoff shows up in referrals during a busy year.