After three years of weak activity, remodeling appears to be poised for a comeback. According to the most recent Leading Indicator of Remodeling Activity (LIRA) released by the Remodeling Futures Program of the Joint Centers for Housing Studies, home improvement investment likely will grow at a double-digit pace (at an annual rate) through the first half of 2011.

Since the recession began, home improvement spending has dropped by 20 percent to 25 percent, according to Joint Center data, but by the end of the second quarter in 2011, LIRA projects up to a 12.8 percent increase.

"It looks like we're going through a slow and steady recovery, and remodeling generally responds to that," says Kermit Baker, Hon. AIA, director of the Remodeling Futures Program and chief economist for the American Institute of Architects.

In the face of a still-sluggish new construction market, LIRA's predictions may seem unrealistic, but Baker maintains that they actually are quite reasonable. "I don't think anyone would be surprised by a double-digit annual increase in spending following a 20 to 25 percent decline. About 10 percent growth would be on the normal side of average for year one growth after a recession," he explains. "We're not getting back even half of what we lost during the downturn."

Joint Center economists think that the slowly progressing economic recovery, coupled with stabilizing housing prices, will boost consumer confidence enough to loosen homeowners' grips on their purse strings and encourage spending on necessary and discretionary home improvements. With more foreclosed homes entering the resale market and mortgage rates still at or near their lowest level in years, the stage seems set for a healthy remodeling recovery over the next several quarters. Much of the foreclosed inventory that is being resolved will need some improvements after sitting unmaintained for months or being damaged by former owners.

Credit remains tight and households still have less equity to tap than in previous years, but historically financing has supported only about 30 percent of home improvement spending. These days, roughly 15 percent to 20 percent is financed, with most households preferring to pay cash, according to Baker.

"Just over the past six months, we've seen a shift in project composition from replacements—windows, doors, siding, items that are pretty stable—more toward discretionary improvements—kitchen and bath projects, interior replacements, items that can be deferred," Baker adds. "And in the past six months, we've been seeing substantial growth in professionally installed projects, rather than do-it-yourself. There are a lot of positive signs that the market is very slowly coming back to normal."