The housing market is discouraging big remodeling projects

Evident in home improvement retailer Lowe's (LOW) latest earnings, US home prices are becoming a growing deterrent to consumers wishing to invest in major renovation or remodeling projects. Will do-it-yourself (DIY) spending see a boost once mortgage rates begin to cool and the US housing market stabilizes?

Abbe Will, the Harvard Joint Center for Housing Studies' Senior Research Associate & Associate Director of Remodeling Futures, joins Brad Smith on Wealth! to talk the interplay between the state of the US housing market and Americans' willingness to spend on home projects.

"We do see that this softening in spending and home improvement and repair spending is partly driven by the ongoing weakness in the housing market... those high mortgage rates preventing folks from buying, from moving," Will explains. "And it is the weakness in existing home sales that is really a big factor in our forecast for softer spending this year. A lot of remodeling does tend to happen around the time of a sale."

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Luke Carberry Mogan.

Video transcript

Also, let's take a look at Lowe's, Lowe's customers pulling back on their hammers and nails again this quarter.

The home improvement retailer saw consumers cutting back their visits and spending less when they go.

But our next guest sees the tides turning as the housing market starts to recover.

And for more, I'm joined by Abbe Will, who is the senior research associate at the Joint Center for Housing Studies of Harvard University.

Great to have you here with us, Abbe, to kick off this conversation first and foremost you.

You think about results and the trend of what we're seeing from even companies like Lowe's coming out and talking about the DIY consumer.

What does that really spell out on a more broad macro scale?

From your perspective, right?

So our current projections indicate that spending on renovations and repairs in the US will soften moderately this year, down 6.6% from our estimated spend of 463 billion in 2023 down to 451 billion in 2024.

So I think this certainly lines up with what we've been seeing in, uh, the retail sales sector you know the the hardware store sales?

Um, homeowners have been, uh, pinched, Uh, by high costs.

Uh, certainly, uh, inflation, you know, as high as it's been across the economy, uh, more broadly, it's been even more extreme in building materials in costs of skilled labour.

Uh, and I think homeowners are are reacting to that this year.

We We are anticipating that the market, um, may be bottoming out this year, right?

That's certainly what our current projections show that will bottom out, uh, kind of in the second half of this year and and start to actually head towards, uh, recovery, uh, into early next next year.

Certainly.

And so th that considered Abbe, when we're thinking about either the remodel projects or the kind of rental markets that even is keeping a lot of people locked in at this point because they're priced out of getting into a good interest rate or getting a home or the supply, and that's the issue.

I mean, there's so many different factors.

What is what's having the most outsized effect from your perspective and from your study here.

So we do see that this softening and spending and home improvement.

Repair spending is partly driven by the ongoing weakness in the housing market, right, Those high mortgage rates, uh, preventing folks from buying from moving.

And it is the the weakness in existing home sales that is is really a big factor in our our forecast for softer spending this year.

Uh, a lot of remodelling does tend to happen around the time of the sale.

You know, folks might might do some work in advance of putting their home on the market.

But in particular, recent home buyers, uh, typically spend considerably more for home improvement.

So, like on average, a recent home buyer in the first several years after purchase are spending 30% more for home improvements than homeowners who've been in their homes for for for longer.

Uh, and and so I think the the um, Certainly that decline in in home sales that we've seen over this past year to this year, uh, is hurting, uh, the market overall does.

Does a pull back in some of the DIY projects signal to you perhaps where consumers or or or where potential home buyers are also saying, you know what, we're just gonna start to save up a little bit more instead of, you know, putting more into what we currently own right now, if we start to save up, then perhaps we'll be best positioned to capitalise on what's gonna be, uh, perhaps heavy bidding period once rates do become more favourable as well.

Yeah, absolutely.

And what we do see, uh, you know, during kind of times of of a softer market housing market remodelling market is that homeowners do shift their spending the composition of their spending.

So it shifts from, uh, being relatively more focused on the discretionary projects.

You know, the types of projects that homeowners love to do the kitchen and bathroom models, the room additions to really focusing more on what needs to be done, right, The the need to do projects we call them replacement projects.

You know, roofing, window siding, systems and equipment.

All of the work that can only be put off for so long, um, before it just really becomes necessary.

And those projects, you know, homeowners will continue to spend for them.

Uh, they they really need to, especially considering considering our very old and ageing housing stock rate.

So so fully half of homeowners today are living in homes that are at least 40 years old.

And so you know that that alone, uh, I think is really helping to drive a lot of the replacement spending that that has been happening and that we continue to expect, uh, this year too.

Certainly.

And so what are the DIY projects that still makes sense for people to do in in order to get the best return on that investment?

Yeah.

I mean and DIY.

You know, I think a lot of projects that are done DIY often are more in the discretionary realm.

I'm certainly if if a homeowner feels they have the skills to do some of those replacement projects, but you know not not a lot of DIY roofing replacements, for example.

Uh, it's just not not a popular, uh, project there.

Um, but the the smaller scale projects, you know, the the kind of maybe doing a a, um, partial kitchen remodel.

You know, replacing the countertops.

You know, refacing the cabinets painting.

Uh, all of that can can be done, uh, much more.

You know easily as a DIY project and certainly would provide, you know, enjoyment for homeowners to to kind of freshen up their spaces, knowing that, you know, they might not be able to do the bigger full remodel, uh, this year, or or really, until you know, the market changes.

Or or they just feel feel better about making those bigger investments in their home.

Abbe, thanks so much for taking the time here with us today.

That's Abbe Will, who's a senior research associate at the Joint Center for Housing Studies of Harvard University.

Appreciate it.

Thank you.