According to the latest Bankrate Money Pulse survey, 28 percent of U.S. homeowners have plans to remodel, expand or otherwise improve their homes in the next 12 months. Millenial homeowners are the most likely age group to indicate they have plans to make home improvements.
As home prices plummeted and access to home equity vanished during the last recession, Americans cut back on their home improvement projects. But the remodeling market has rebounded in recent years. “The last couple of years in particular, we’ve been seeing the activity trending up with homeowners doing more projects, spending more on projects,” says Abbe Will, a research analyst in the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. “What really swings the market up and down is project mix and project size, basically. Are homeowners doing more replacement projects or bigger, more discretionary projects?”
An increase in discretionary remodeling helped drive spending up 5.3 percent in the 4th quarter of 2015, higher than the historical trend, Will says. That means more homeowners are tackling larger projects like the bathroom or kitchen renovations. Credit both a healthier economy and an improved real estate market, she says.
The most popular projects
The Bankrate survey found that exterior work is the most popular type of home improvement. About 52 percent of homeowners planning a project over the next year indicate they want to work on their driveways, decks, patios, pools, landscaping or fencing. Other popular projects include: installing new flooring; getting new windows, roofing or siding; and renovating a kitchen.
That’s not to say the most popular projects are necessarily the best projects for homeowners to tackle, especially if return in investment is an important factor. A December 2015 report by the National Association of the Remodeling Industry and the National Association of Realtors found a number of projects that earn a return of 60 percent or less when an owner sells the home [QR reported on the Remodeling Impact Report here]. Some of the more popular projects in the Bankrate survey are the least likely to provide a solid return, including renovating a bathroom, adding a master suite and installing wood-framed windows.
Although home improvement activity is considered healthy, Harvard’s Will says a labor shortage and “consumer financing concerns” are stifling further growth. Put simply, many homeowners can’t access their home’s equity to pay for improvement.
But there are other indications the recession has made homeowners gun-shy about pulling money from their house. A March survey by LightStream [QR covered here], the online lending arm of SunTrust Bank in Atlanta, found nearly two-thirds of homeowners planning renovations will pay for it with savings. “If you go back 8 or 9 years ago, I think that people were more likely to use their home equity to fund these kinds of projects,” says Todd Nelson, LightStream’s business development officer. “They are clearly less willing today to use their home as a piggy bank than they were a decade ago.”
After savings, homeowners first will turn to credit cards to fund their home improvements. The LightStream survey found 6 percent of homeowners planning home renovations in 2016 will take out a personal loan.
The Bankrate Money Pulse Survey was conducted March 17-20, 2016, by Princeton Survey Research Associates International and included responses from 1,000 adults living in the continental U.S. Learn more about the Bankrate Money Pulse Survey here.