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Sunday, February 03, 2008

Home Improvement Investment

by Calculated Risk on 2/03/2008 01:46:00 PM

I heard from a prospective homebuyer in the Bay Area of California this morning. She noted that almost every house she has viewed had recently remodeled kitchens and baths.

And that brings up an interesting point: Real spending on home improvement has held up pretty well so far (only off 2% in real terms from the peak). If this housing bust is similar to the early '80s or '90s, real home improvement investment will slump 15% to 20%.

Home Improvement InvestmentClick on graph for larger image.
This graph shows real home improvement investment (2000 dollars) since 1959. Recessions are in light blue (source: BEA)

Real spending on home improvement increased slightly in Q4 2007 after declining the previous two quarters. With declining MEW, it is very possible that home improvement spending will slump like in the early '80s and '90s.