According to the most recent data from Harvard University's Joint Center for Housing Studies, home remodeling will experience another significant decline in 2009. The first-quarter Leading Indicator of Remodeling Activity (LIRA) shows homeowner spending on home improvement dropping by 12 percent by the end of the year. Growth in remodeling indicators has been negative since the third quarter of 2007, after peaking in the first quarter with a value of $146.1 billion, a 10 percent growth over the previous year. Remodeling spending could drop to $110.2 billion by fourth-quarter 2009, the LIRA reports.

Lower interest rates for home improvement financing, part of the recent stimulus package, have proved insufficient to offset continuing increases in unemployment and falling consumer confidence, according to Kermit Baker, director of the Joint Center's Remodeling Futures Program. Those who are unemployed or fear becoming unemployed are unlikely to invest in unnecessary improvements, he adds.

Adding to the continued slump in remodeling are the foreclosed homes that have flooded the already oversaturated existing housing market. As Baker points out, such properties are unlikely to receive any updates or major improvements until new owners move in. "Remodeling is heavily influenced by turnover of the housing stock," he explains. Purchasing an existing home often spawns an immediate wave of home improvement projects, but with existing home sales hovering at all-time lows—about 4.5 million in March 2009, down from about 6.4 million, according to the National Association of Realtors—literally millions of homes aren't candidates for remodeling.

However, Baker thinks the housing market may begin a modest recovery on the sales side, if not on the new production side, by the end of 2009, which could, in turn, spur remodeling spending. "The indicator [appears to be] scraping bottom now; we're waiting for it to turn," he says. "It hasn't perked up yet, but it looks like it's getting ready to. In the first quarter of 2010 we'll probably see an uptick, and by the second quarter we may be back in positive territory."

The end of the current market correction and subsequent turnaround in remodeling will come when housing prices stop declining and people become less nervous about losing their jobs, according to Baker, and eventually remodeling will resume its normal cycle. The remodeling market's recovery will be driven by new opportunities, including green or sustainable design and remodeling, necessary improvements to rental stock, and an increase in immigrant homeowners.

The Joint Center for Housing Studies recently released a full report on the future transitions expected in the remodeling market. Read more.