The real estate market is on fire in many parts of the country, which not surprisingly is spurring an increase in home renovations from people who are getting their residences ready for sale or fixing them up once they move in.
But the spike in home improvement is also being driven by people who perhaps want to move, but conclude they could save a lot more money if they simply upgrade the place they’re already in.
If you’re thinking about investing a few hundred or even several thousand dollars into home improvement projects, it might be helpful to know what renovations are hot and which ones are not in case you want to sell your home for the maximum amount in the future.
Overall, Americans are spending more on home-renovation projects — in part because they’re intimidated with the prospect of buying a new house in light of soaring prices and replacing their mortgage rate with one that may not be as great as the one they have.
In general, Americans are embracing large-scale renovations aimed at upgrading rooms such as the kitchen and catching up on deferred maintenance. They are less interested in projects that focus more on indulgences instead of needs, such as hot tubs.
The National Association of Home Builders (NAHB) released its Remodeling Market Index, and the Harvard Joint Center released its Leading Indicator of Remodeling Activity, each showing that more remodelers are seeing increases than decreases. The Harvard index predicts 8 percent growth in the future — almost double the historical growth rate.
This is consistent with HomeAdvisor’s findings. HomeAdvisor, which helps consumers find contractors for home-construction projects, tracks about 10 million service requests annually, and we break down the data into dozens of categories.
From my own research, I can further confirm that there is a shift going on toward long-deferred “major” renovations. Requests for whole-kitchen, whole-bathroom, or whole-house remodeling are up sharply vs. a year ago. Multi-room remodeling requests are up 67 percent vs. this time last year.
Consumers are now leaning more toward what is describe as “nesting is investing.” With home values moving upward, consumers have gained further confidence that their home is a good place to invest their money. Although the upscale department stores and luxury retailers have been seen struggling lately, overall retail sales have been respectable, propped up in part by strong results at home-improvement stores such as Home Depot and Lowe’s. Some consumers clearly consider “nesting” more sensible than buying a new home, and they also see it as a smart investment.
Moreover, prices are getting out of reach for many who would like to move to a different home. Some are finding that it makes more economic sense to stay put and invest where they are.
The latest existing-home sales data showed that home sales (read: turnover) are sharply higher. That is consistent with the fact that the fastest-growing type of service request coming through HomeAdvisor is for moving services, up 89.7 percent (average for all of North America).
Also growing rapidly is home-inspection services, up 42 percent. Not coincidentally, both of these types of services are closely tied to “churn,” or home turnover. In a “high-churn” state like Florida, the percentages are even more dramatic. Growth in “moving service” requests in Florida was up 123.3 percent in the past year, higher than the 89.7 percent increase for North America as a whole.
When mortgage rates go higher in the next few years, I think home-improvement spending will increase.
Why? I call it the “lock-in effect.” People who managed to secure a mortgage with a fixed rate about 3.5 percent will be somewhat reluctant to move once rates get near 5 percent. That move could add hundreds of dollars to a monthly payment, even for a lateral (same price) move. Some of those people will decide it’s better to update, renovate (or add on to) the home they have rather than lose their low fixed rate.
It is also interesting to observe which types of services are in less demand compared with the average. One of the slower-growing categories in the past year has been services related to hot tubs, spas and saunas — a category that is definitely what I would call “discretionary.” It’s a “nice to have” rather than a “need” (for most of us).
Interestingly, the hot-tub category has been even weaker in Florida than in the United States and Canada as a whole. There is a fair amount of trepidation in the United States before the upcoming election, and that may be slowing the rate of growth in that kind of luxury item, as people try to put some money away in savings.
There is another driver of home improvement: the “catch-up” effect. For each of the past three years, there has been an exceptional increase in the demand for help with repairing or servicing appliances in many geographic markets.
There was a great deal of “deferred maintenance” during the recession and for a few years after the recession officially ended, and now many homeowners are finally getting started addressing those items. People can justify the expenditure now that they know that they once again have significant equity in their homes.