Home Renovations on the Rise
By: James Flippin · November 21, 2022 · Reading Time: 3 minutes
Home Improvement Is Up
Due to a massive spike in mortgage rates over the past year, almost every other aspect of the housing market is crashing in response.
This includes new home sales, construction, and even prices — which, despite soaring since 2021, are now tumbling at an elevated pace compared to seasonal trends, per a CoreLogic (CLGX) report. But, there’s one place that consumers are still shelling out cash when it comes to their home: renovations.
According to a Houzz survey, 37% of homeowners completed a remodeling project in 2022 and a quarter or so are planning projects for 2023. This is supported by both Home Depot (HD) and Lowe’s (LOW) latest earnings, with both DIY construction giants posting upbeat Q3 reports at a time when the rest of the market is struggling.
Reasons to Remodel
There are many reasons why homeowners are choosing to remodel right now.
To start, the US housing stock is older than it has been in generations — the average American home is about 40 years old. For many homes, renovations are simply past due.
Additionally, new homes aren’t being built as quickly, thanks to global supply chain headwinds. Even if consumers want to move, their options are fairly limited, currently.
Not to mention, the work-from-home trend lends an extra incentive for consumers to create more comfort in their own homes.
Locked In Interest Rates
Finally, US consumers are experiencing an effect known as “interest rate lock-in effects”.
If you got approved for a mortgage over the past few years, you’re probably paying in the ballpark of 2% to 3% in interest. If you were to move and apply for a new mortgage, it would be closer to 7% today. Feeling “locked in” to preexisting favorable rates encourages homeowners to stay put instead of shopping for an upgrade.
Although home renovations have been soaring, some industry insiders believe the trend will be short-lived. Over the coming months, the increased cost of contractor labor and building materials could put a dent in spending on home improvements.
So, if you’re looking to renovate your home, now would seem like a good time to do so. If you wait to fix the leaky faucet, you might just have to fix a leaky wallet, as well.
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