Remodeling Spending Expected To Slow Sharply as Homeowners Remain Wary of Economy

Annual growth in spending on home improvement is expected to slow sharply early next year, according to new projections.

Growth in national home improvement and repair spending for owner-occupied homes will slow to a trickle in the first quarter of 2027, according to the latest Leading Indicator of Remodeling Activity (LIRA) report, compiled by Harvard University's Joint Center for Housing Studies (JCHS).

While total spending on improvement and repair will edge up slightly to $523 billion, according to LIRA projections, the year-over-year rate of growth will slow to 0.5% by early 2027, down from the 2% annual rate seen in the first quarter of 2026.

"People are definitely feeling like the economy is not good, and that's having an impact on their willingness to do large expenses like home remodels," Rachel Bogardus Drew, director of the Remodeling Futures Program at JCHS, tells Realtor.com®.

Developed in 2007, the LIRA uses proprietary data to project annualized remodeling spending for the current quarter and subsequent four quarters. The report is intended to help identify future turning points in the business cycle of the home improvement and repair industry. 

The LIRA looks at indicators such as the number of remodeling permits filed nationwide, which the researchers say are correlated to home projects a year out.

Why remodeling is slowing down

Several factors are at play here. First, there is the recent slowdown of new-home construction (although data for March showed a promising uptick), as well as stagnant sales of existing single-family homes. Renters don't tend to invest heavily in remodels.

"Remodeling follows the overall housing market," Chris Herbert, managing director of JCHS, said in the report. "Without a sustained rebound in construction, we're likely to see remodeling spending remain in this low-growth range for the near future."

This observation also jibes with Home Depot's latest earnings report, in which sales were at $38.2 billion, down 3.8% from a year ago. Home Depot CEO Ted Decker said on a call with investors that "continued consumer uncertainty" remained the biggest threat to the retailer's performance in 2026.

"That's still the No. 1 reason why people are telling us—our customers are telling us—that they're not investing, certainly in large projects," said Decker. "And that has everything to do with consumer confidence and sentiment, jobs' picture, overall price levels and affordability in the economy."

Alongside overall inflation, labor and material costs are rising for renovation projects, causing some people to pause (or cancel) home projects. "Maybe someone will still do the remodel, but they will scale back on what they're spending," says Drew.

In 2024, construction costs accounted for 66.4% of the average price of a new home, compared with 60.8% in 2022, according to the National Association of Home Builders' Cost of Construction Survey. The tariffs have added roughly $30 billion to the cost of investment in residential structures, according to an analysis from Brookings.

Then there is the labor shortage in the skilled trades. Many workers are aging out of the industry and not being replaced by younger generations.

"This is a long-term issue in the industry," says Drew. "Labor demand and supply has been a challenge for remodeling contractors."

On top of that is an ongoing federal immigration crackdown, which has hit the construction industry particularly hard.

"About 35% of the labor industry are foreign born," Drew explains. "Change in immigration policy and the perception of immigrants is having an impact on contractors' ability to get people to show up to job sites. They worry it's not a safe place for them to be."

ICE raids in the construction industry have had a "chilling effect," including slowing the rebuilding of Los Angeles after the devastating 2025 wildfires, say experts.

"People are really going into hiding," Brock Harris, a local real estate agent who worked closely with developers on rebuilding efforts in L.A., previously told Realtor.com. "There's a noticeable sense of fear that 'I could literally get snatched off my job site.'"

Contractors who are able to find the labor they need will have to pay more for it. "The people still out there doing the work can ask for higher wages," says Drew. These costs are of course passed along to the consumer.

Then there are higher interest rates. Home equity loan interest rates are expected to ease in the year ahead, according to Bankrate’s regular survey of rates, but they are still averaging 7.75%, while home equity lines of credit will come in closer to 7.3%. These rates are likely to make many homeowners think twice before tapping into equity to fund renovations.

"Home remodeling projects have been slowing down in the last 12 months because financing is too expensive, coupled with households feeling maxed out with the cost of nearly everything increasing," agrees Nathan Moeder, principal at real estate advisement firm London Moeder.

"The oil markets and what is going on with Iran doesn’t help homeowners feel any better. At the end of the day, homeowners need to feel that they have more disposable income or the economic outlook is strong for them to take on more debt and improve their dwellings."

He adds most of the remodeling work done in the last 12 months has been by flippers, but they too are getting squeezed by the high costs of labor and high interest rates.

Future outlook for remodeling

Despite the expected remodeling slowdown, Drew says that, two to four years out, things should improve. Long-term indicators related to demographic and social trends show that homeowners will have no choice but to pick up the hammer and nails again.

Housing stock is getting older, so more trips to the home improvement store will be needed.

"Older homes are only getting older and people are staying in them, so [the houses] will need more work," she says.

And the aging of the typical homeowner will have a big impact. As of three years ago, the average age of a homeowner was 42, says the center, the oldest on record. And the largest generation of homeowners, baby boomers, are increasingly aging in place, which could require modifying their homes.

"The needs they have for their housing is changing significantly," she says. "Whether they age in place or move, there is not enough housing stock that exists to meet the needs of all the older homeowners that will exist in the next 10 years."

"Chances are, they will need to renovate. That will bode well for demand for remodeling going forward."