Demand for home renovation loans could be temporarily boosted by inflation

Even first-time buyers can spend large sums on alterations and repairs a year after buying their home, according to a new National Association of Home Builders. report.

The average expense for a new home owner was $11,900, according to NAHB’s analysis of three-year data through the start of 2020 from the Bureau of Labor Statistics’ Consumer Expenditure Survey.

These expenses, which were on average about twice as high for resale buyers, suggest that home purchases by builders may also play a role in demand for renovation financing.

While home modifications were attractive at the start of the pandemic due to the growth of remote working, buyers are now interested in making modifications due to a new driver: inflation that makes commuting or less appealing hobbies.

“If you asked me today, I’d say if this trend is going to continue, and I’d pin it on gas prices,” Jim Bopp, vice president of Planet Home Lending, said in an interview. “People, for example, in New York are wondering if I want to spend $300 on gas and drive up to the Adirondacks for the weekend, or put in a pool?”

Homebuyers will likely need financing for such projects because their budgets have been stretched to the limit. Growth in the three months ending April 30 was just 0.3%, according to Redfin. This is the lowest increase since June 2020.

Also attesting to the pressure exerted on buyers by inflation, stock market volatility and rising interest rates; luxury home sales saw the biggest drop since the pandemic in the three months ended April 30, Redfin found. Sales fell nearly 18%, compared to nearly 5.5% for non-luxury homes. (Redfin defines luxury homes as those within the top five price points for the local market.)

“People are increasingly looking for homes that are a little under the market,” said Bopp, who is vice president of national home improvement loans in Planet’s correspondents division. “They will try not to overspend.”

While new home modifications such as installing a swimming pool are part of the demand in his business and can have high prices, Bopp said it’s more the repairs on older homes that are more outdated. than in distress that drive the bulk of home improvement loan activity.

“These are homes that could be well maintained and maintained, but where someone is going to walk in and say, ‘I don’t want the green cabinets and the orange countertop,'” he said.

Although budgets for such work are increasingly stretched, the persistence of high levels of home equity empowers many buyers to finance, said Doug Perry, strategic finance adviser at online platform Real Estate Bees.

“Many existing homeowners have loanable capital they can draw on to make renovations, which is often more affordable than selling and buying a similar home,” Perry said in an email.

Home equity lines of credit and other home improvement loans have risen as a result, but some studies suggest that if consumer spending continues to rise, those gains could slow.

“The level of annual spending on home improvements and repairs is expected to reach nearly $450 billion by the first quarter of 2023,” said Abbe Will, associate project director of the remodeling future program at the Harvard Joint. Center for Housing Studies, in a press release earlier this year. “Yet rising costs of project financing, building materials and labor, as well as growing concerns about a broader economic downturn or recession could further slow the growth of remodeling.”

To date, however, home improvement loans appear to be moving forward and compensating some slowdown in senior lendingBopp said.

“I’ve spoken to some credit unions. Their first mortgage volumes were down maybe 57%, but their equity loans were up 70%,” Bopp said. “So people are going to tap into that new equity and not touch that 30-year, 3% fixed rate mortgage that they might have, unless they really need it because they have to move. in another state or something.”

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