A remodeling revival
As home prices plummeted and access to home equity vanished during the last recession, Americans cut back on their home improvement projects. But the remodeling market has rebounded in recent years. By one measure, called the Leading Indicator of Remodeling Activity, or LIRA, annual home improvement spending in nominal terms is expected to set a record in 2016.
"The last couple of years in particular, we've been seeing the activity trending up with homeowners doing more projects, spending more on projects," says Abbe Will, a research analyst in the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University, which developed the LIRA.
"What really swings the market up and down is project mix and project size, basically," Will says. "Are (homeowners) doing more replacement projects or bigger, more discretionary projects?"
An increase in discretionary remodeling helped drive spending up 5.3% in the 4th quarter of 2015, higher than the historical trend, Will says. That means more homeowners are tackling larger projects like bathroom or kitchen renovations.
Credit both a healthier economy and an improved real estate market, which has allowed people like Arnold to buy and then fix a home, while others have decided to stay put and finally tackle projects they put off during the recession, Will says.
The most popular projects
The Bankrate survey found that exterior work is the most popular type of home improvement. About 52% of homeowners planning a project over the next year indicate they want to work on their driveways, decks, patios, pools, landscaping or fencing.
Other popular projects include:
- Installing new flooring.
- Getting new windows, roofing or siding.
- Renovating a kitchen.
That's not to say the most popular projects are necessarily the best projects for homeowners to tackle, especially if return on investment is an important factor in choosing what to improve.
A December 2015 report by the National Association of the Remodeling Industry and the National Association of Realtors found a number of projects that earn a return of 60% or less when an owner sells the home.
Some of the more popular projects in the Bankrate survey are the least likely to provide a solid return, including renovating a bathroom, adding a master suite and installing wood-framed windows.
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Although home improvement activity is considered healthy, Harvard's Will says a labor shortage and "consumer financing concerns" are stifling further growth. Put simply, many homeowners still can't access their home's equity to pay for improvements.
"The lending environment is tighter, more restrictive than it should be," Will says.
But there are other indications the recession has made homeowners gun-shy about pulling money from their house. A March survey by LightStream, the online lending arm of SunTrust Bank in Atlanta, found nearly two-thirds of homeowners planning renovations will pay for it with savings.
That's how Arnold and her fiance are financing the remodeling projects on their new home.
"If you go back 8 or 9 years ago, I think that people were more likely to use their home equity to fund these kinds of projects," says Todd Nelson, LightStream's business development officer. "They are clearly less willing today to use their home as a piggy bank than they were a decade ago."
In fact, after savings, homeowners first will turn to credit cards to fund their home improvements. And, Nelson says, unsecured personal loans are "no longer the loan of last resort," thanks to low interest rates and fast loan funding.
The LightStream survey found 6% of homeowners planning renovations in 2016 will take out a personal loan.
"They seem to be more available in the market now than they were previously because the traditional methods still are not bouncing back as quickly as we'd expect," Will says. Homeowners are saying, "'If I can't (use home equity), what can I do?' It's a curious development."
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