Home Improvements For the Holidays

'Tis the season to be jolly - and also a time to spruce up the house. Consumers plan to spend an average of $628 on fixes and renovations, a survey says.
By: Andrea Coombes: The Wall Street Journal Online
'Tis the season to be jolly - and apparently also the season to improve the home, according to a recent survey from Deloitte & Touche, the consulting firm.

U.S. consumers plan to spend an average of $628 on improving their house this holiday season, up 84% from the $341 they said they'd spend in 2003 at this time.

That means, of the total $2,348 consumers say they'll spend this holiday, the biggest portion will go to the home, with 27% going to home improvement, while 26% will go to gifts, 17% to socializing, 12% to charity, 9% to entertaining at home, 7% to nongift clothing, and 2% to holiday-specific furnishings, according to the 20th annual Deloitte survey of 17,440 consumers, taken in October.

The survey didn't define "home improvement," so consumers could be counting everything from buying new furniture to remodeling.

While a big portion of holiday dollars are going to home improvement, that simply reflects pricier items, said Richard Giss, a partner in Deloitte's consumer business practice. Giss is based in Los Angeles.

"If I buy a China hutch or a dining-room table, the outlay in dollars is enormous relative to other gifts I might give," he said.

It's likely consumers' drive to beautify their homes is connected to rising house values in recent years, he said. "There's a belief that 'I can spend on my home and get the money back,'" Giss said.

Even buying furniture appears, to some consumers, to add to the home's value, he said. Furniture is a depreciating asset, "but no one thinks of it that way, and if you do any repairs to your home, people think that adds to the value of the house," Giss said.

Plus, "there's more entertainment done at the holidays," he said. "It's a natural time to assess your home."

Home-improvement construction easing

But if you look solely at the kind of home improvement that involves construction, activity tends to be highest during the spring and summer months, said Kermit Baker, director of the remodeling futures program at Harvard's Joint Center for Housing Studies.

The program produces a quarterly index of home-improvement activity.

"Home improvement spending generally tracks new construction spending, which is weak in the fourth quarter. The heaviest time is spring and summer," Baker said, noting that's mainly a weather-driven phenomenon.

The dollars spent on home improvement have been accelerating at a steady clip in recent years, driven higher by rising home values and low interest rates spurring refinance activity, which in turn led to dollars spent on home repairs.

Homeowners spent more than $139 billion on home improvement in the third quarter, up 4.4% from a year ago. But that growth rate appears to be easing slightly, Baker said.

In the fourth quarter of 2004 and the first quarter 2005, homeowners spent $143.4 billion and $148.7 billion, respectively, on home improvement, with both figures representing double-digit gains from year-ago periods. See the Center's remodeling index for the third quarter.

"Housing sort of sailed through this last recession," Baker said. "Falling interest rates encouraged a lot of people to refinance and they cashed money out and took on a slightly bigger mortgage and used a lot of that for home improvement," he said.

Now, the market appears to be calming, he said. There's "not much refinance activity anymore, new- and existing-home sales numbers look like they've peaked. The sense is we're on the downside of this cycle now," Baker said.

"There are no signs the market's heading into recession, but no signs that it's starting to accelerate," he added.

"Falling interest rates, increasing home sales, they seem to be on the easing side of the cycle, not the growing side. There doesn't seem to be anything that would start to reverse that and accelerate this market that I can see."