The costs to purchase a new home right now continue to escalate, putting it out of reach for much of the population, driving more households to stay in place and do what they can to maintain, repurpose and reimagine their homes.
Many of the households currently on 15- and 30-year mortgage payment plans are at rates below 5%. Now, mortgage rates have skyrocketed to their highest levels in about 15 years. So, at the new rates, a home buyer would add more than $40,000 to the life of the loan on an average home purchase. With that said, it’s no wonder that a recent Zillow report noted that homeowners with mortgage rates below 5% are nearly twice as likely to want to stay put in their current home.
While economic factors aren’t the only reasons people stay in place, it is the leading driver today, which is also triggering investments in home improvement projects.
Commitments to home improvement projects also could be easier today because homes are appreciating at the fastest rates ever. The average annual appreciation typically sits around 4%, but recently homeowners experienced an average of 17%, giving them plenty of equity to tap into to finance projects.
“Pent-up demand and macroeconomic conditions, such as aging housing stock and high mortgage rates, which continue to drive home improvement activity, are instilling a sense of optimism among builders, remodelers, architects and interior designers as they look ahead to the second half of the year,” said Marine Sargsyan, Houzz staff economist.
With these drivers motivating more home improvement projects, let’s take a look at some details around who is doing what, when, where and why.
A Different Era of Remodeling
Over the years, remodeling projects have evolved. Today, they take on many new variations.
First, we are coming out of a pandemic. Homeowners are emerging from lock down, and they face new work situations. Companies across the country are shutting down offices, pushing people back into their homes for the daily office grind. So, homeowners are looking at ways to renovate to create quiet, calm, technology-enhanced spaces to work.
Second, the pandemic also drove households to think about their home can impact their health. So, remodeling projects centered around health and wellness, including indoor air quality, are becoming more frequent. Research from Chrissi Antonopoulos, a senior energy analyst at Pacific Northwest National Labs, shows that many of the motivators for home improvement projects are quality of life based.
Third, the housing stock is aging. Today’s Homeowner reports that the median age of a home in the U.S. is 39 years old, with 50% of homes being built before 1980. So, a larger percent of projects are tied into the ongoing maintenance and upkeep of homes.
Houzz data goes into additional detail on the projects that are related to the aging housing stock, with close to 30% of homeowners choosing to upgrade plumbing in 2022, with electrical and home automation improvement projects close behind.
Finally, the government is offering incentives that are motivating owners to consider clean energy retrofits. Harvard’s American Housing Study shows that 34% of home improvement spending goes to energy-related projects, which has remained steady during the last decade. There is a strong correlation between the aging of a home and the investment in energy efficiency projects, which increases substantially when the house is more than 20 years old.
These incentives provided by the Inflation Reduction Act are new and just being communicated to homeowners at a state level, so could inspire much more remodeling activity during the coming months.
Regardless of the incentive, the study also shows that 93% of homeowners felt they had a better quality of life after finishing their renovations, which as Antonopoulos pointed out, is a major incentive.
Homeowners Age In and Out of Remodeling
Why would the homeowner’s age matter in these home improvement activities? In general, older homeowners have more disposable income to finance projects and to hire labor to do the project. On the flip side, they also have the experience and knowledge to tackle projects on their own. Plus, they most likely have been living somewhere longer, so they have built up more equity in their home, which can also be a financing mechanism.
“We know older generations who have been in their homes longer have, on average, more equity to tap into to do more expensive jobs which typically involves a contractor,” said Dave King, the executive director of the Home Improvement Research Institute (HIRI). “Additionally, there is some evidence to suggest that younger generations simply aren’t as interested in the trades and haven’t learned the same DIY skills as their older counterparts. and are therefore less likely to do DIY as a percentage of total projects done.”
However, many younger buyers aren’t going to be priced out. To find affordable housing, many have to take on fixer uppers, and they may just simply have the energy to make it work. Data provided by HIRI show that younger generations are more likely to purchase a home that needs improvement.
“There has also been some work in the last few years from HIRI that suggests Millennials are more likely to do a hybrid with contractors,” King said. “Gen Y will do some of the work themselves, then have a pro come in for certain aspects.”
The National Assocation of Realtors reports that 12% of recent buyers who are older Millennials purchased a previously owned home because they wanted a DIY fixer upper.
The group’s deputy chief economist and vice president of research, Dr. Jessica Lautz, adds that a considerable share of younger buyers may have compromised on the condition knowing they would need to later remodel, but did what they could to enter the housing market today.
The Social Media Impact
Younger generations also grew up watching every style, size and shape of renovation show on TV, and now watch social media influencers talk about renovations online. When I did a quick search for influencers focused on remodeling, I got lists of hundreds, and the most popular have more than a million followers.
This content and the influencers behind it are creating streams of content that are easy to access and can make anyone catch the DIY bug. The HIRI data shows that younger populations are much more likely to consider themselves “heavy DIYers.” Maybe that is because there is a Youtube video that can walk them through nearly any project that they want to take on.
It appears that younger generations are doing more projects that fit in the discretionary space such as needing more space in their home compared to older generations who are more likely to simply be doing maintenance, which again could be because of the longevity in the home.
From the Harvard Joint Center for Housing Studies Remodeling Futures Group recent Improving America’s Housing report we see similar data. It shows that younger owners continue to be the most likely to do DIY projects and are somewhat less likely to do pro projects. But, maybe that is not always the case.
“That said, we have seen the DIY share of improvement spending trend downward over the last several decades for the youngest owners under age 35, which we’ve also speculated is because younger owners today are not as skilled at DIY projects as prior generations or as interested in spending their time on these activities,” said Abbe Will, senior research associate and associate project director with the Remodeling Futures group. “And with the aging of the housing stock, younger owners today are also buying into homes that are more likely to need upgrades requiring skilled installation like roofing and electrical/plumbing systems and equipment.”
Data from Today’s Homeowner supports this, showing that older homeowners only spend 15% of their home improvement budgets on DIY projects.
Houzz reports show an increase in households of every generation hiring pros to do the work, up 2 percentage points to more than 9 in 10 renovation projects in 2022. The same report points to Gen Xers and Seniors relying the most on pros at 46% each.
Another demographic differentiator was marriage. The Today’s Homeowner reports show that married couples with children spent more on remodeling projects than single people.
Bringing Meaningful Value
With every homeowner chasing their dream home, there are lots of opportunities for renovations. As homeowners spend more time at home, they need a space that can deliver intangible value, be safe, healthy, comfortable and secure. Anotopoulous says that means talking to them about health and wellness, not about money savings.
“In residential there are no shareholders, so they don’t renovate homes because they want to make money,” she said. “They are concerned about indoor air quality, or health. The motivations that the U.S. Department of Energy traditionally use are not the things that drive uptick in the residential market.”
Her research on the spectrum of home improvement motivators shows that even though people often say they are committing to a renovation for financial reasons, they most often are not. Her advice is to stay away from a focus on lowering utility bills and talk about thermal comfort instead, like most HVAC companies that sell comfort. So, there are other motivators that we have to acknowledge even if the pros, and the homeowner themselves, don’t fully understand.
The market remains healthy. Today’s Homeowner predicts that home improvement sales will reach more than $620 billion in 2025.
With current economic factors, there will continue to be discretionary spending financed by home equity and homeowners wanting to get the most pleasure out of where they are stuck in place.
And, once they are invested, they want to stay put for a while. The 2023 Houzz and Home Study reports that more than 60% of homeowners plan to stay in their home for 11 years or more following a planned renovation in 2022. Plus, only 6% of today’s homeowners doing renovations plan to sell their home, which is half of where it was in 2018 at 12%.
With more homeowners staying in place, not a lot of new housing coming online, it looks like a healthy road ahead for remodeling.
Plus, 69% of homeowners feel a major sense of accomplishment after they’ve completed their project, but who wouldn’t enjoy a healthier, safer, more resilient home?