Property Owners Invest in Home Makeovers and Fixes...
U.S. Homeowners Undeterred by Economic Uncertainty, Boost Spending on Home Renovations
LOS ANGELES — Despite a general pullback in consumer spending and diminished confidence in the economy, American homeowners persist in investing in home renovation projects, with sales at building materials and garden supply retailers registering a notable increase. Last month, sales ascended 0.8% compared to March, marking the largest gain since 2022 and a 3.2% rise compared to April of the previous year. Meanwhile, overall U.S. retail sales showed a sluggish 0.1% increase, a marked slowdown from March.
The trend of heightened home renovation activity comes amidst escalating prices for home improvement products. In the first quarter of this year, the cost of home repairs and remodeling surged by nearly 4%, according to Verisk's Remodel Index. The index tracks expenses associated with over ten thousand home repair items, ranging from appliances to windows.
Interestingly, this recent price increase doesn't seem to be linked to the ongoing trade war initiated by the Trump administration with major U.S. trading partners such as Mexico, China, and Canada. Greg Pyne, vice president of pricing for Verisk Property Estimating Solutions, stated in a recent report that there have been no signs of panic buying from contractors or investors concerned about the potential impact of tariffs on future costs or labor rates being boosted by stricter immigration policies.
Home Depot, one of the leading home improvement retailers, confirmed this week that it does not expect to raise prices due to tariffs, thanks to its long-standing efforts to diversify the sources of goods on its shelves. However, Billy Bastek, an executive at Home Depot, warned that certain products currently available may eventually disappear. Additionally, he noted a decrease in the number of customers undertaking substantial home improvement projects like kitchen and bathroom remodels, possibly due to higher interest rates discouraging homeowners from borrowing money to finance such initiatives.
The resilience of spending on home renovations can be attributed to several factors, including elevated mortgage rates and spiraling home prices that have excluded many potential buyers from the market, leading to a slump in U.S. home sales. This constrained market has left homeowners with few alternatives but to invest in improving their existing properties.
Moreover, many homeowners who secured mortgages with interest rates below 3% or 4% during the initial years of the pandemic are hesitant to sell now, as the average rate hovers near 7%. Instead, these homeowners have chosen to invest in home enhancements rather than sell and assume a mortgage with a sharply higher interest rate.
An ageing stock of homes built before 1980, which constitute nearly half of owner-occupied homes in the U.S., has a median age of 41 years, according to an analysis of Census data by the National Association of Home Builders. This antiquated housing stock has contributed to the need for repairs and improvements.
With regard to the future of home renovation spending, Harvard University's Joint Center for Housing Studies anticipates an increase this year, despite economic uncertainty. Spending by homeowners on maintenance and home improvement projects climbed 0.5% in the first quarter of this year to $513 billion, according to the center's leading indicator of remodeling activity, or LIRA. The LIRA also forecasts annual increases from here, with spending expected to reach $526 billion by the first quarter of next year, marking a 2.5% increase from the first quarter of this year. However, concerns about housing market and economic conditions worsening could potentially dampen these expectations, said Carlos Martínez, director of the center's Remodeling Futures Program.
Homeowners are increasingly investing in home improvement projects, such as renovations and remodels, despite the economic uncertainty, demonstrating a strong connection between their finance and lifestyle decisions. This boost in home improvement spending can be partially attributed to the surge in costs of home repair items, highlighted by Verisk's Remodel Index.
Moreover, businesses like Home Depot have not anticipated raising prices due to tariffs, but warn of potential product shortages, signaling a significant link between the business sector and home improvement choices. With predictions of increased homeowner spending on maintenance and home improvement projects this year by Harvard University's Joint Center for Housing Studies, it seems that the home-and-garden and home-improvement sectors will continue to play a significant role in shaping lifestyles and finance for many Americans.
