Housing Segments and Segmented Remodeling
Major revision in progress; please e-mail for the latest draft
In 2019, home remodeling and improvement accounted for over $400 billion in
annual U.S. investment. I show that this sizable investment in remodeling is
also segmented investment: investment concentrates in the right tail of major remodels.
Households making major remodels live in higher-quality homes within a housing market,
as defined by their self-reported home values. Preliminary results show remodeling is
both procyclical and price elastic, but that price elasticities vary between households with
different mortgage payment-to-income ratios. A rise in house price indices by one percent
raises remodeling propensities as much as a percentage point rise in leverage decreases them.
These facts suggest credit markets play a key role in directing remodeling activity
toward providing affordable housing stock and not toward properties held for investment purposes.