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Remodeling as a Housing Indicator

We're always looking at indicators to see where the housing market is headed, like today's reading of the Realtors' "Pending Home Sales Index,"which measures contracts signed for home purchases, hence an indicator of future closings. We look at consumer confidence, construction permits, even employment numbers to gauge housing's future, but what about remodeling as an indicator?

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Tom Grill | Getty Images

Today the National Association of Home Builders put out its quarterly remodeling index, which rose to the highest level since 2006.

What does remodeling say about home buying? I think it says two things.

At the top of a housing bubble, there's a lot of remodeling because a lot of people are buying a lot of homes, and they naturally want to put their personal touches on those homes. We also saw a lot of remodeling during the housing boom because so many borrowers took all that bloated equity out of their homes to pay for new kitchens and bathrooms and swimming pools and "man caves" (I really really hate that term).

Remodeling plummeted during the housing crash because of negative equity, lack of home buying, and zero confidence in housing as an investment. Not to mention that nobody wanted to spend a dime of whatever cash they had on anything.

So now as we bump along the bottom and anticipate a potential double dip, why would remodeling improve?

Easy, because if you can't buy a home, and you can't sell your home, and you're getting a little tiny bit more confident about the economy, your only choice is to make your current home better.

I know this because it's exactly what I'm doing.

I've wanted to buy a bigger home for a few years now, but like everyone else in the country, the housing crash made me hold off.

So now that I'm feeling a little more secure in the economy and the housing market here in DC, I called a contractor to fix the really glaring parts of my house that make me want to move. Of course, given the truly lousy and incorrect appraisal I recently got for my house, I'm not pulling any equity out, so I'm not spending much.

That's exactly what the Builders' survey found.

"Homeowners are still slow to commit to remodeling due to feeling uncertain about the economic recovery and difficulty obtaining loans," says NAHB Remodelers Chairman Bob Peterson.

Remodelers reported the top reasons prospective customers are holding back:

  1. Financing
  2. Lost equity in home
  3. Uncertainty about economic recovery
  4. Reluctance to invest in home when not sure home will hold its value
  5. Negative media stories making customers more cautious (yay me!)
  6. Inaccurate appraisals are making financing more difficult (tell me something I don't know)

Questions? Comments? RealtyCheck@cnbc.comAnd follow me on Twitter @Diana_Olick