What Lenders Should Know About Americans’ Appetite for Remodeling Homes By Susanna Kim

remodelingRising home prices and the aging population are fueling Americans’ appetite for remodeling. As the Baby Boomers enter their retirement years, the desire to grow older in your own home is rising as a reason to remodel, according to a survey from the National Association of Homebuilders (NAHB).

“Remodeling market conditions are positive, and business is growing,” says Robert Dietz, NAHB chief economist.

The quarterly National Association of Homebuilders’ Remodeling Market Index, a measure of remodeler market confidence, stood at a level of 53 for the second quarter of 2016. Although it slipped one point from the first quarter, any score above a level of 50 indicates that more remodelers view market conditions as positive rather than poor. The index has been in positive territory for 13 straight quarters.

The National Association of Homebuilders asked remodelers to rate the reasons customers want to remodel on a scale of 1 (“never/almost never”) to 5 (“very often”). In the NAHB’s survey from the first quarter, the top two reasons cited were, unsurprisingly, a desire for new or better amenities and a need to repair or replace old components. However, there have been some notable changes in reasons to remodel from 2012 to 2016, Dietz says.

Aging in Place, Sharing Homes

The NAHB survey notes customers citing “desire to be able to age in place” “often” or “very often” as a reason for remodeling, according to homebuilders surveyed, has increased to 39 percent in 2016 from 32 percent in 2012.

The desire for new amenities and the need for additional living space have been rising in importance too. Dietz says this is a consequence of higher rates of multigenerational households. The NAHB’s analysis indicates that as of 2014, more than 20 percent of young adults ages 25 to 34, or 8.8 million, live with their parents or in-laws. In 2000, this share was less than 11 percent.

What Renovators Want 

remodelWith the hope to age in place rising as the Baby Boomers enter their retirement years, those choosing to retire in their existing home will likely seek to make changes, both in terms of function and style, Dietz says.

Energy-efficiency, for example, is a priority for many homeowners, given the nation’s aging housing stock, Dietz says. The median age of a home was 37 years in 2013, compared to 27 in 1993, according to the latest American Housing Survey published by the Department of Housing and Urban Development.

For borrowers — whether buying or refinancing a home — who want to finance water and energy efficiency improvement projects, there are options to roll those costs into a new mortgage. Fannie Mae’s HomeStyle® Energymortgage lets borrowers finance up to 15 percent of the as-completed appraised value of the home.

Fannie Mae’s HomeStyle® Renovation mortgage similarly helps borrowers make improvement projects totaling up to 50 percent of the as-completed appraised value of the property with a first mortgage.

The Future of the Remodeling Market

NAHB is forecasting growth of just below 3 percent for aggregate improvement spending for 2016, as market conditions remain positive, and additional growth in 2017, according to Dietz.

While demographics and rising home equity — a consequence of rising home prices — are pluses, there are some potential drawbacks for remodelers and those financing renovation projects. Dietz says expansion in this market will be limited due to flat inventory conditions in the home resale market, which will hold back existing home sales.

On the supply side of the renovation market, remodelers, like builders, are facing challenges accessing labor, Dietz says. In late 2015, a survey by NAHB indicated that 80 percent of remodelers reported a shortage of finished carpenters.

“This is an issue for the entire construction sector,” Dietz says.

There’s another group of homebuyers who will unlock additional demand for remodeling services and provide additional demand for new home construction, he says.

“Looking forward, as Generation Y increases its participation in the for-sale housing market, these prospective buyers will enable existing owners of entry levels homes to sell their current residence,” Dietz says.