Americans are delaying their home renovation plans and opting for more affordable options amid high borrowing costs and a housing market recovery that has yet to materialize.
Two of the nation’s top home improvement retailers reported this month that consumers are spending less on big-ticket projects that often require loans and trading down for more affordable do-it-yourself remedies.
Home Depot (HD), for instance, said big-ticket transactions of over $1,000 were down 6.5% compared to the first quarter last year.
“We continue to see softer engagement in larger discretionary projects where customers typically use financing to fund the projects such as kitchen and bath remodels,” William Bastek, Home Depot’s executive vice president of merchandising, told investors and analysts on the company’s first quarter earnings call.
Lowe’s (LOW) said this week consumers are shifting away from buying multiple to single items, pressuring comparable sales, which fell 6.2% in the quarter as homeowners continue to delay larger discretionary projects.
This differs from the early days of the pandemic, where ultra-low interest rates drove housing sales and remodeling spending. But today rates have spiked, causing more homeowners to stay put in their homes.
That means consumers are putting off making bigger investments in renovations to increase resale value of their homes.
And homeowners are cutting costs where they can. A quarterly survey from John Burns Research and Consulting published in late April found that among those who are renovating their homes, customers are looking for cheaper alternatives in categories like cabinets, flooring, lighting fixtures, and countertops.
“These downgrades are becoming more common with cost-conscious consumers,” Matt Saunders, senior vice president of building products research at John Burns, told Yahoo Finance.
Total spending on home improvement and repairs is expected to drop by over 7% in the third quarter of this year to $451 billion, researchers from Harvard University’s Joint Center for Housing Studies’ latest Leading Indicator of Remodeling Activity showed.
“Homeowners have been pinched by high costs,” Abbe Will, associate project director of the Remodeling Futures Program, which is part of Harvard’s housing studies center, told Yahoo Finance this week. “Certainly, inflation is as high as it’s been across the economy [and] more broadly it’s been even more extreme in building materials, and costs of skilled labor.”
Tim Poterek from West Branch, Mich., is among the many homeowners who have been reassessing their renovation plans. Poterek immersed himself in remodeling and DIY projects during the pandemic. Since then, he’s chosen to be more cautious about spending on home improvements.
“To replace anything nowadays is just ridiculous,” Poterek told Yahoo Finance in an interview. “You’re paying top prices for lumber, interest rates on credit cards, loans, things like that.”
Poterek is in the process of repairing his shower stall. He originally wanted to replace it but the cost was out of his budget. Instead, he’s been using DIY Facebook groups to assist him in fixing the shower.
“I’ll take pictures and post them, usually I get really good ideas and great feedback,” Poterek said.
With the help of experts and other DIYers whose suggestions ranged from taking out screws to cutting out the bulge on 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 that offered me some suggestions,” Poterek added.
Many homeowners have been reacting to higher financing costs by pausing or delaying projects to a further date, about 36% of consumers reported, per John Burns, while 30% of consumers are spending less on remodeling projects.
“Remodeling is being weighted down by that COVID cohort shock to remodeling where a lot of remodeling activity was done at a very short period of time. This is just now working its way through the system,” Saunders said.
The slowdown in renovations may not last for long, according to some industry experts.
Data from the National Association of Home Builders showed remodeler confidence slightly dipped in the first quarter of this year, with the index measuring current conditions staying unchanged for projects of all sizes and the index gauging future activity — the rate at which leads and inquiries are coming in and the backlog of jobs — also remaining flat. Still, the overall index shows more remodelers view the remodeling market conditions as good than poor.
“Demand for remodeling remains solid, especially among customers who don’t need to finance their projects at current interest rates,” said NAHB Remodelers chair Mike Pressgrove, a remodeler from Topeka, Kan.
There are also potential catalysts that could unleash more home improvement activity.
“We’re seeing rising household wealth, which is a strong leading indicator for large discretionary model projects,” Saunders said. “We think in the back half of the fourth quarter of this year is when we’ll start to see remodeling grow again.”
“Half of homeowners today are living in homes that are at least 40 years old and that alone is really helping to drive a lot of the replacement spending that has been happening and that we continue [to see] this year too,” Will said.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv.
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