Tight supply, rising values drive explosion of home-improvement spending
Baby boomers, millennials increase investment
A shortage of inventory and rising values have some homeowners thinking twice before putting their houses up for sale. The good news is that, in the meantime, they are investing more than ever on renovations and upgrades.
Over the next 12 months, U.S. homeowners are projected to spend $324 billion on home improvement projects, according to the Joint Center for Housing Studies at Harvard University.
“The remodeling market continues to benefit from a stronger housing market and, in particular, solid gains in house prices, which are encouraging owners to make larger investments in their homes,” Chris Herbert, the JCHS's managing director, said.
Spending by baby boomers has long fueled the market for home renovations and upgrades, and that influence seems certain to grow. A survey by Houzz, a home-renovation website, found that 6 in 10 baby boomers plan to stay in their current homes for the next five years; another 20 percent of respondents are undecided.
Those who stick around are putting more money into stairs, ramps and other improvements to ensure their homes remain accessible well into retirement. In 2005, homeowners 55 and older accounted for just shy of a third of spending on home improvement. By 2025, that share will be well over half of all spending -- 56 percent -- according to Harvard's JCHS.
Less downsizing by older homeowners is one factor that's making it harder for millennials, especially those looking to buy their first home, to crack the housing market. Coupled with a lag in new-home construction, younger buyers are deciding to invest in older homes that need work.
Millennial homeowner spending on home improvement overall was up by 7 percent in 2016, to an average of $26,200. First-time buyers, meanwhile, spent an average of nearly $34,000, an increase of 22 percent.
Nino Sitchinava, principal economist at Houzz, expects recent homebuyers to spend heavily this year, as well.
“Younger and cash-constrained first-time buyers are responding to the low inventory of affordable homes by purchasing properties that require more than just cosmetic upgrades," she said.
Indeed, while spending on kitchens ($19,100 on average) and master bathrooms ($11,700) in 2016 was about the same as 2015, owners invested 11 percent more on living rooms, dining rooms and guest bedrooms last year than in 2015.
According to the Houzz survey, more than half of homeowners who responded said they planned to begin or continue renovations in 2017. And they expect to spend more than they did in 2016 -- an average of $27,300, or 4 percent more than last year.
Whatever project they decide to launch, unless they do it themselves, they'll wait longer for the work to begin.
A Houzz survey of building professionals who specialize in renovation work found their services in high demand. The respondents -- more than 2,400 general contractors, architects and design specialists -- reported customer backlogs of four to seven weeks.
That's just one more indicator that the home-renovation industry will continue to see gains through 2017 and well into 2018.