Americans looking to remodel their homes are retiring, but the industry has better days ahead.
“Remodeling is slowing, but historic boom is ahead,” Eric Finnigan, vice president of research and demographics at John Burns Real Estate Consulting, said in an interview with Yahoo Finance.
According to Finnigan, there are three factors that are likely to help this sector in the years to come.
First, in the home remodeling market, 24 million homes are expected to need repairs or upgrades to roofs, floors, heating and cooling systems, kitchens, bathrooms and more.
“[These homes are] Basically, it’s going to be kind of a complete facelift,” Finnigan said. A house enters its “best modeling years” when it is about 20-40 years old.
“We see a great wave of houses entering this cohort, [those] sort of a prime rebuild years,” Finnigan said.
Second, three-quarters of mortgage borrowers are locked into mortgage rates of 4% or less and are likely to stay for as long as possible. But even those homes need updating, Finnigan said.
Finally, homeowner equity is at record levels, offering homeowners the opportunity to pay for renovation projects now or in the future.
Kate and Cameron Reinhart stand inside their 1880s octagonal home, which they renovated during the coronavirus pandemic, in Norwich, eastern Connecticut, U.S., January 14, 2021. Picture taken January 14, 2021. Portal/Dan Fastenberg
Home improvement slowdown
While expectations of future remodeling may be high, current market dynamics have meant these projects have been shelved in recent months.
On Tuesday, Home Depot (HD) warned in its latest earnings report that the company expects “moderate” demand for home improvement supplies.
“In the third quarter, we saw some slowdown across certain products and categories that was more pronounced in the fourth quarter,” Home Depot CEO Ted Decker told analysts on Tuesday’s earnings call.
US like-for-like sales for Home Depot fell 0.3% in the fourth quarter, missing expectations for a 0.3% gain, Bloomberg estimates.
Home renovations, particularly DIY projects, have boomed during the pandemic as many Americans have been stuck at home trying to combat eyesores in their homes. However, demand for these home improvement projects has been plagued by increased inflation and a change in consumer habits.
The story goes on
“The time people spend in their homes is directly related to how much they are willing to spend on the home,” Finnigan said.
Data from John Burns Real Estate Consulting showed Google searches for discretionary home improvement projects dropping to 2019-2020 levels.
The number of consumers “planning” for a kitchen or bathroom renovation has fallen since its peak in 2021, while projects like replacing facades or a roof are seeing steady search interest.
Interest in DIY Google Search: “Want” projects vs. “Need” projects. (Source: John Burns Real Estate Consulting)
High inflation has also hit home improvement spending.
Customers have become more price sensitive as essentials like groceries and rent have become more expensive. Home Depot said the company is seeing “more sensitivity” as consumers cut back on spending.
For professionals working in remodeling, customers compromise on product quality to stay on budget, with 60% of respondents to a recent survey by John Burns Real Estate Consulting reporting this behavior.
Remodeling customers are becoming more price sensitive. (Source: John Burns Real Estate Consulting)
Nonetheless, Finnigan expects demand for projects to remain robust in the coming years as housing sales slow amid higher interest rates and an aging housing stock.
“There are fewer listings out there, fewer listings of homes, fewer homes sold, but [the] Underlying demand for conversions is higher than it has likely been in a decade,” Finnigan said.
“And it will be higher for longer.”
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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