August 01, 2008

Understanding Remodeling Cycles

Abbe Will

W08-6: This paper assesses the cyclical nature of the remodeling industry between 1987 and 2007, and how remodeling cycles relate to cycles in the homebuilding industry and the broader economy. This research finds that remodeling activity is pro-cyclical with both new residential construction and the broader economy, but remodeling seems to lag homebuilding by several quarters. Also, while remodeling activity is highly cyclical and volatile, it is still less volatile than the homebuilding industry. The high cyclicality of remodeling activity appears to be driven by upper-end discretionary improvements, which are quite volatile, whereas the more routine and less costly projects, such as systems and equipment upgrades and maintenance and repairs, are much more stable over time. Lastly, since a much greater share of D-I-Y spending goes toward these highly cyclical discretionary projects, D-I-Y spending fluctuates considerably more as compared to professional spending…

Category: Working Papers

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