With the recent government shutdown and uncertainty about rising rates, homeowners might start to think twice about tackling a remodeling project this year, unless they have the skills and knowledge to do the work themselves.
Despite a strong 2018 in our area, and after several years of booming business, home remodeling growth is expected to actually shrink this year for the first time in three years.
Demand is slowing because home values aren’t gaining as much, mortgage interest rates are rising and fewer homes are selling – this may also be due to the lack of resale inventory.
For those buyers who purchased last year, they tend to spend about 30 percent more on fixing up their new purchases than longtime residents, but even longtime residents might think about putting off any renovations until they see what the market does this year.
Both buying and selling are top drivers of home renovations.
Remodeling tends to go hand in hand with home sales, so when a homeowner is preparing their home for sale they’re likely to do some work just getting their home ready for the market.
Likewise with new home buyers, as they will tend to do the most work on their homes in the first two or three years after purchase, making the home fit their needs.
A slowdown this year?
Reports out of Washington, D.C., note that some architects, who are six months to a year ahead of contractors in terms of seeing slowdowns, are seeing some slowdown already.
While the remodeling business is expected to slow, consumer spending on projects is expected to rise slightly because construction costs are still very high, making renovations more expensive.
The slowdown in overall projects is expected tp hit home improvement retailers like Home Depot, Lowes, Masco and Sherwin-Williams. Sherwin-Williams just reported a disappointing fourth quarter, its CEO saying the weakness was “across the board.”
A big part of that is weaker consumer sentiment in housing overall, driven by rising mortgage rates, which make a renovation project more costly.
Taking a remodeling pause?
Many lenders note that owners pay for renovation projects either with a cash out refi, or a home equity loan or line of credit, and that now many are taking a pause and wondering if that’s really the right move right now while the market is in flux.
There is also a growing belief that home prices have peaked.
The majority of homeowners use home equity, either through a cash-out refinance or a second line of credit, taking money out of their homes to fund what they put into their homes. While home values are softening, they are unlikely to fall dramatically in most parts of the country.
Still, homeowners are very emotional about their nests, given that it is likely their single largest investment. That means anything and everything will weigh on their decisions — stock market volatility, the government shutdown and the growing fear that the economy will weaken.