Americans are putting off home renovation plans in favor of more affordable options amid high borrowing costs and a housing market recovery that has yet to materialize.
Two of the nation’s largest home improvement retailers reported this month that consumers are spending less on big projects that often require loans in favor of more affordable do-it-yourself resources.
For example, Home Depot (HD) said large transactions over $1,000 were down 6.5% compared to the first quarter of last year.
“We continue to see softer involvement in larger discretionary projects where customers typically use financing to finance projects such as kitchen and bathroom renovations,” William Bastek, Home Depot’s executive vice president of merchandising, told investors and analysts during the company’s earnings call the company in the first quarter. .
Lowe’s (LOW) said this week that consumers are switching from buying multiples to single items, putting pressure on comparable sales, which fell 6.2% in the quarter as homeowners continue to postpone larger discretionary projects.
This is a departure from the early days of the pandemic, when ultra-low interest rates boosted home sales and remodeling spending. But today, rates have skyrocketed, leaving more homeowners in their homes.
This means that consumers are postponing larger investments in renovations to increase the resale value of their home.
And homeowners are cutting back where they can. A quarterly survey from John Burns Research and Consulting released in late April found that among those renovating their homes, customers are looking for cheaper alternatives in categories such as cabinets, flooring, lighting fixtures and countertops.
“These downgrades are becoming more common among price-conscious consumers,” Matt Saunders, senior vice president of building products research at John Burns, told Yahoo Finance.
Total spending on home improvements and repairs is expected to decline by more than 7% to $451 billion in the third quarter of this year, according to the latest Leading Indicator of Remodeling Activity from Harvard University’s Joint Center for Housing Studies.
“Homeowners are being pinched by the high costs,” Abbe Will, associate project director of the Remodeling Futures Program, which is part of the Harvard Housing Studies Center, told Yahoo Finance this week. “Certainly, inflation is as high as in the entire economy [and] more broadly, it is even more extreme in terms of construction materials and the cost of skilled labor.”
Tim Poterek of West Branch, Michigan, is one of many homeowners who have reassessed their renovation plans. Poterek delved into remodeling and DIY projects during the pandemic. Since then, he has chosen to be more cautious about spending on home improvements.
“Replacing anything these days is just ridiculous,” Poterek told Yahoo Finance in an interview. “You pay top prices for lumber, interest rates on credit cards, loans, things like that.”
Poterek is busy repairing his shower stall. He originally wanted to replace it, but the cost was beyond his budget. Instead, he uses DIY Facebook groups to help him fix the shower.
“I take pictures and post them, usually I get really good ideas and great feedback,” Poterek said.
With the help of experts and other do-it-yourselfers whose suggestions ranged from removing screws to cutting out the bulge in the wall, Poterek was able to think creatively about his options.
“To repair [the shower stall]it’s probably going to cost me about $25 to $30, thanks to the people who gave me some suggestions,” Poterek added.
Many homeowners have responded to higher financing costs by suspending or postponing projects to a later date, with about 36% of consumers reporting, according to John Burns, while 30% of consumers are spending less on renovation projects.
“The renovation is being intensified by the COVID cohort shock, with many renovation activities being carried out in a very short time. This is just now working its way through the system,” Saunders said.
According to some industry experts, the delay in renovation work may not last long.
Data from the National Association of Home Builders shows that renovator confidence fell slightly in the first quarter of this year, with the index measuring current conditions unchanged for projects of all sizes and the index measuring future activity – the speed at which leads and questions come in. and the backlog of jobs also remains the same. Still, the overall index shows that more renovators view market conditions for renovations as good rather than bad.
“Demand for remodeling remains solid, especially among customers who don’t need to finance their projects at current interest rates,” said Mike Pressgrove, president of NAHB Remodelers, a Topeka, Kan.-based remodeling company.
There are also potential catalysts that could unleash more home improvement activity.
“We are seeing rising household wealth, which is a strong leading indicator for large discretionary model projects,” Saunders said. “We think we will see rebuild growth again in the second half of the fourth quarter of this year.”
“Half of homeowners today live in homes that are at least 40 years old and that alone really contributes to a large portion of the replacement expenditures that have occurred and continue to do so. [to see] This year too,” Will said.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv.
Read the latest financial and business news from Yahoo Finance
