Economic Indicator Developed by Housing Center

The Joint Center for Housing Studies (JCHS) has devised a new economic indicator that estimates the amount Americans are spending to improve and repair owner-occupied homes. It was unveiled last week at the National Association of Home Builders' "1998 Remodelers' Show" in Chicago.

The Remodeling Activity Indicator (RAI) for the third quarter of 1998 estimates that $88 billion was spent during the most recent four quarters ending September 1998 -- an increase of 4 percent over the previous four-quarter period. The RAI estimates that remodeling spending on owner-occupied homes has increased 15 percent since late 1996.

The RAI was developed to provide a timely and stable reading of activity levels for the remodeling industry -- a growing industry that accounts for almost 40 percent of all residential investment in new home construction and remodeling.

Nicolas P. Retsinas, director of the JCHS, remarked, "Home remodeling is a major industry, not only in the construction sector but as a source of growth for the overall economy. The remodeling industry supplements homebuilding to ensure expanded opportunities for firms doing business in the residential sector. Notwithstanding record levels of new home construction, most Americans live in old homes -- often in need of remodeling." Kermit Baker, project director of the Joint Center's Remodeling Futures Program, explains, "The homeowner remodeling market has performed very well in recent quarters. At $88 billion, remodeling spending by homeowners has reached a new record, and low interest rates will encourage further home improvement projects by homeowners."

Prior to the RAI, measurement of these expenditures was limited to the U.S. Commerce Department's quarterly Expenditures for Residential Improvements and Repairs. As an indicator, the RAI 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 RAI will be regularly released by the JCHS during the third week after each quarter's closing -- approximately two quarters before the U.S. Commerce Department's data on residential improvements and repairs are available -- in order to provide industry with an accurate and timely reading of national remodeling activity levels. The calendar for 1999 release dates is Jan. 19, April 20, July 20, and Oct. 19.

Research to produce the RAI grew out of the Remodeling Futures Program, a three-year JCHS study supported by the Joint Center's Policy Advisory Board and other industry sponsors. The complete working paper, "Development of a Leading Indicator for the Homeowner Improvement Market," is available by contacting the Joint Center for Housing Studies at 495-7908.