Home Builders Predict Another Remodeling Boom
As the median age of a home in the United States continues to rise (39 years as of June 2022) along with interest rates, home builders are predicting another remodeling boom on the horizon. In fact, thanks to rising home prices, the National Association of Home Builders (NAHB) believes that the most likely result of the mix of prices, age, and interest rates will be that more homeowners opt to remodel their homes in the coming year – and they will probably be spending more money to do so.
“Rising home prices encourage homeowners to spend more on home improvement,” the NAHB observed on its “Eye on Housing” blog. Analysts noted that more than one-third of owner-occupied homes nationally were built before 1970, meaning that substantial upgrades could be coming as owners modernize layouts, appliances, and amenities.
The NAHB uses its Remodeling Market Index (RMI) to indicate remodeler confidence in the market for projects of different sizes and scopes. The RMI measures growth expectations on a scale of 0 to 100; an index number higher than 50 indicates an overall positive view of a given condition for a given type of project. At the end of 2020 in the fourth quarter, large remodeling projects with a budget of $50,000 or higher posted an RMI reading of 78, indicating a strong expectation of more of these types of projects in the future. The Current Conditions Index (CCI) was even stronger with a reading of 85.
Not surprisingly, many contractors and builders reported that although they had strong confidence that they would have projects in the coming months, they also had a significant backlog of projects. By the end of Q4 2020, backlogs on remodeling projects were receiving an index rating of 73.
For real estate investors, the biggest question is who is getting ready to remodel. Knowing homeowner preferences can help you make decisions about what your rental residents may want from you in the near future. According to a LendingHome survey released this past July, millennial homeowners are “leading the charge” in terms of renovations. However, they are not necessarily modernizing their properties; instead, they are upgrading interiors of older homes to meet modern needs. For example, millennials report favoring “vintage” home styles like modernist, Victorian, and colonial over newer construction, and they are spending most of their renovation budgets on outdoor space, kitchen, and bathroom upgrades.