Rising borrowing costs and a yet-to-be-realized housing market recovery have Americans putting off home improvement plans in favor of more affordable options.
Two of the nation's top home improvement retailers said this month that consumers are spending less on costly projects that often require loans and turning to more affordable DIY solutions.
For example, Home Depot (HD) announced that high-value transactions over $1,000 were down 6.5% compared to the first quarter of last year.
“Interest in larger discretionary projects that customers would typically finance using loans continues to be weak,” William Bastek, Home Depot's executive vice president of merchandising, told investors and analysts on the company's first-quarter earnings conference call.
Lowe's (LOW) said this week that same-store sales fell 6.2% for the quarter as consumers tend to buy single items rather than multiples and homeowners continue to put off large discretionary projects.
That's a departure from the early days of the pandemic, when ultra-low interest rates spurred home sales and renovation spending. But today, rates are skyrocketing, causing more homeowners to stay in their homes.
This means consumers are putting off making big investments in renovations in order to boost the resale value of their homes.
And homeowners are cutting costs wherever they can: A quarterly survey released in late April by John Burns Research & Consulting found that home-renovation customers are looking for less expensive alternatives in areas like cabinets, flooring, lighting fixtures and countertops.
“These downgrades are becoming more common among cost-conscious consumers,” Matt Sanders, senior vice president of building products research at John Burns, told Yahoo Finance.
Total spending on home renovations and repairs is expected to fall more than 7% in the third quarter of this year, to $451 billion, according to the latest Leading Indicator of Renovation Activity released by researchers at Harvard University's Joint Center for Housing Studies.
“Homeowners are struggling with high costs,” Abe Will, associate project director at the Remodeling Futures Program, part of Harvard University's Center for Housing Studies, told Yahoo Finance this week. “Certainly, inflation is at an all-time high across the economy. [and] More broadly, the costs of building materials and skilled labor have become even more extreme.”
Tim Poterek of West Branch, Michigan, is one of many homeowners reevaluating their remodeling plans. He spent the pandemic dousing himself in remodeling and DIY projects, but has since become more cautious about spending on home improvements.
“It's ridiculous to trade anything now,” Potelek told Yahoo Finance in an interview. “We're paying top dollar for lumber, credit cards, interest on mortgages.”
Poterek is currently fixing his shower stall – he initially planned to replace it but the cost exceeded his budget – so instead he's turning to DIY Facebook groups to fix his shower.
“When I take a photo and post it, I usually get some really good ideas and great feedback,” Potelek said.
With the help of experts and other DIYers, who offered suggestions ranging from removing screws to cutting out bulges in the walls, Poterek was able to think creatively about his options.
“To repair [the shower stall]”It'll probably cost about $25 to $30, thanks to some people who've given me some suggestions,” Poterek added.
According to John Burns, many homeowners are pausing or postponing projects in response to rising financing costs, with about 36% of consumers reporting they are postponing projects, while 30% of consumers are spending less on remodeling projects.
“Renovations are being squeezed by the COVID shock to renovations where there was a lot of renovation activity in a very short period of time. This is now seeping through the system,” Sanders said.
The slowdown in renovations may not last long, some industry experts say.
Renovator confidence declined slightly in the first quarter of this year, according to data from the National Association of Home Builders. Indicators measuring current conditions were unchanged for projects of all sizes, and indicators of future activity (rate of leads/inquiries and backlog of work) were stable. Still, the overall index shows that more renovators view the state of the remodeling market as good than bad.
“Demand for remodeling remains strong, especially among customers who don't need financing for projects at current interest rates,” said Mike Pressgrove, a Topeka, Kansas, remodeler and chairman of NAHB Remodelers.
There are also potential catalysts that could drive more home improvement activity.
“Household equity is trending up, which is a strong leading indicator for large discretionary model projects,” Sanders said. “We believe we will see remodeling begin to pick up again in the second half of the fourth quarter of the year.”
“Half of homeowners today live in homes that are over 40 years old, which alone is a huge driver of the replacement spending that has taken place and will continue to take place. [to see] “Same this year,” Will said.
Dani Romero is a reporter for Yahoo Finance. Follow him on Twitter. Dani Romero TV.
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