Residential remodeling spending grew at a record pace through mid-2022, then began to cool. Year-over-year growth in home improvement and repair spending peaked near 20 percent in the third quarter of 2022 before easing to roughly 15 percent in early 2023, and annual spending is still climbing, from about $391 billion toward $449 billion. For general contractors, remodelers, and building product suppliers, the shift changes how projects get priced, scheduled, and financed. Homeowners planning work in hot climates can apply the same smart remodeling strategies that keep projects on budget when demand cools.
The pattern behind the numbers is straightforward: a market that grew from single digits to nearly 20 percent year over year cannot hold that pace forever. When growth decelerates, jobs do not disappear, but they change character, and contractors who read the signals early can adjust before the backlog thins. The remodeling forecast is published quarterly, which gives the industry a regular, reliable pulse to plan against.
What the Leading Indicator of Remodeling Activity Shows
The most closely watched barometer for renovation demand is the Leading Indicator of Remodeling Activity, or LIRA, published quarterly by the Remodeling Futures Program at Harvard University’s Joint Center for Housing Studies. The index projects year-over-year changes in spending on improvements and repairs to owner-occupied housing, and it gives contractors an early read on demand roughly two quarters before the work starts.
The recent readings trace a clear arc. Growth held at 1 to 3 percent from late 2019 through late 2020, accelerated to 11.5 percent in the first quarter of 2022, and is projected to peak at 19.7 percent in the third quarter of 2022 before softening to 15.1 percent in the first quarter of 2023. Annual spending is expected to rise from $391 billion to $449 billion over the same window. The slowdown is a deceleration, not a collapse: spending keeps growing, just at a slower rate.
| Indicator | Reading | What it means |
|---|---|---|
| Peak quarterly growth | 19.7% (2022-Q3) | Fastest year-over-year gain of the cycle |
| Growth at 2023-Q1 | 15.1% | Strong, but easing |
| Spending at 2022-Q1 | $391 billion | Baseline for the surge |
| Spending at 2023-Q1 | $449 billion | Record annual total |
| Growth 2019-Q4 to 2020-Q4 | 1-3% | Pre-surge steady state |
| Growth at 2022-Q1 | 11.5% | Start of the acceleration |
The distinction between growth rate and spending level matters for planning. A falling growth rate still sits on top of a record dollar volume, so a contractor’s revenue can rise even while the headline growth number shrinks. What changes is the rate of new bookings, which is exactly the number that drives hiring decisions and equipment purchases.
How the LIRA Is Built
The LIRA combines four inputs, each tied to activity that precedes actual remodeling work:
- Existing home sales, since a sale typically leads to renovation within a year.
- Renovation permits, which register planned work before it starts.
- Retail sales of building materials, a proxy for homeowner purchasing.
- Home improvement spending relative to the value of the housing stock.
Each input leads actual remodeling work by months, which is why the indicator can project demand before contracts are signed. Contractors who track the underlying series get an even earlier signal than the headline number. The remodeling spending surge that began in 2021 showed up first in permits and material sales, not in job starts.
Why Home Equity Keeps Demand Alive
Massive house price appreciation built a stock of tappable home equity that continues to fund projects even as other financing gets more expensive. Homeowners who gained equity during the price run-up can borrow against it at terms that beat credit cards and personal loans, and many reinvest that equity in the home itself. Equity-funded work tends to be the larger jobs: additions, kitchens, primary baths, and whole-house renovations.
Equity-Funded Projects vs. Maintenance Work
Equity-driven jobs behave differently from maintenance and repair work. A deck replacement or a roof repair follows weather and wear, while an addition follows confidence in home values and financing costs. When equity growth slows, the mix shifts toward smaller, necessity-driven jobs. Existing home sales, renovation permitting, and retail sales of building materials all grew at high rates through 2022, and the JCHS remodeling forecast extended growth into 2023 because equity levels stayed high enough to support the pipeline. For contractors, that mix matters: knowing whether the local market is funding additions or repairs changes which bids to chase.
Contractors can verify the equity story in their own markets without waiting for the national release. Local title and deed records show sale prices and refinance activity, lenders publish current home equity loan rates, and county appraisal rolls reveal how assessed values moved. When those local numbers diverge from the national trend, trust the local ones for staffing and marketing decisions.
The Cost Side: Financing, Materials, and Labor
Three cost pressures can pull growth below even the projected numbers: rising financing costs, more expensive construction materials, and a tight labor market. Each hits a different part of the estimate. Interest rate increases raise monthly payments on home equity loans and lines of credit, shrinking the project budget a homeowner can afford. Material inflation forces estimators to pad allowances or re-bid quickly. Labor shortages stretch schedules, and every extra week in the field adds overhead.
Material Costs and the Bid Window
In a decelerating market, the bid window gets shorter. Suppliers reprice lumber, panels, and hardware on short cycles, so a quote that holds for 30 days may not hold for 60. Contractors who lock in allowances, buy long-lead items early, and write escalation clauses protect margins without surprising the client. Crew productivity matters more as fixed costs climb; simple measures such as dust containment for remodeling projects keep job sites running without unplanned cleanups and rework.
Labor Planning in a Slowing Market
Subcontractor availability loosens when demand cools, which gives general contractors more room to negotiate rates but also more competition for the best crews. Holding a reliable bench of trades is worth more than shaving points on a single bid, because rework and delays cost more than the discount saves.
Budgeting practices also shift. Instead of a single allowance line, estimators can break materials into locked, quoted, and floating buckets. Locked items are bought or contracted immediately, quoted items hold for a defined window, and floating items carry an escalation clause that passes documented increases to the client. The method preserves trust because the homeowner sees exactly where the risk sits.
How Contractors Should Use Market Indicators
The LIRA and its components are planning tools, not background noise. Contractors who read them quarterly can time hiring, marketing spend, and material commitments. A five-step routine covers the essentials:
- Review the LIRA release each quarter and note the projected growth rate two quarters out.
- Watch existing home sales, since a sale typically precedes a renovation by three to six months.
- Track renovation permits in the counties where you work; they lead actual starts.
- Follow retail sales of building materials as a proxy for homeowner activity.
- Adjust hiring and equipment purchases to the projected growth, not the current backlog.
The indicator is a forecast, not a guarantee. Severe weather, a spike in mortgage rates, or a local employer closure can override the national projection within a quarter. Treat the LIRA as the base case and run a downside scenario: what happens to the pipeline if growth lands at half the projection? Contractors with a plan for that case can keep crews busy without discounting.
What a Slowing Market Changes in Practice
A drop from 19.7 percent to 15.1 percent growth does not mean fewer jobs; it means fewer new jobs added each quarter. Bidding gets more competitive, timelines lengthen, and clients shop harder. Contractors who hold margins by managing costs, rather than by discounting, stay healthy through the transition. The LIRA is a national number, so local conditions can diverge sharply: compare the national projection with your own permit and bidding data before changing course. Market cycles vary by region, and construction industry growth elsewhere shows how different drivers, from infrastructure spending to population growth, reshape demand.
Planning for a Deceleration
The playbook for a slowing market starts with diversification. Maintenance, repair, and smaller renovation work holds up better than large discretionary additions when growth eases, so a mix of job sizes stabilizes the pipeline. Marketing shifts from chasing the biggest projects to converting a higher share of inquiries. Cash management tightens: progress billing, prompt collection, and leaner material inventories reduce exposure to slow-paying clients.
Client communication carries more weight when prices are moving. A short written note at contract signing that explains how material allowances work, when prices lock, and how change orders are priced prevents most disputes later. Homeowners accept rising costs when they understand them in advance; they resist surprises at the end.
Building a Resilient Project Pipeline
Resilient contractors treat the forecast as one input among many. They keep a rolling 90-day pipeline, maintain relationships with two or three lenders for client financing, and stay visible in the community. Broad infrastructure programs, from transportation system growth to utility work, absorb crews when residential remodeling slows, so a license and capability range that spans both sectors smooths the ride.
Remodeling spending will still reach record levels in 2023, but the pace of new work will ease, and the businesses that plan for it rather than react to it will capture the available projects. Specialty work that holds steady in slower markets, such as staircase design and remodeling, keeps crews productive and margins intact while the broader pipeline rebuilds.