Ask your homeowner clients which is preferred: renovating their existing, outdated home — or listing it in favor of finding everything they need in a new home?
Chances are, their general consensus has shifted throughout the recent volatile years of spiking (and ebbing) access to cash with the 2020-2021 stimulus payments, mortgage interest rate and property price volatility, and the nation’s aging housing stock.
Owners of 20-to-39 year-old homes are most likely to perform major renovations, according to a National Kitchen and Bath Association industry report shared in the New York Times.
While the number of homes reaching the prime age for renovations continues to grow each year — rising 2%-3% annually due to functional obsolescence and evolving amenities — economic realities mean homeowners aren’t always able to pay for the renovations they want to.
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New construction doesn’t always mean more homes to go around
No one to answer the call
Would-be renovators are finding themselves wedged between a rock and several hard places. In 2023 specifically, the return to rising interest rates alongside now deteriorating savings rates are meeting the brick wall of a construction labor shortage.
Over 80% of contractors specializing in home remodeling report a shortage of subcontractors in most trades, according to the National Association of Homebuilders (NAHB).
This is part of the broader trend of an aging workforce and lack of immigrants as replacements in the construction industry, with the share of construction workers in their early- and mid-careers consistently falling, down 6% since 2016.
Fewer workers translates to less availability to meet demand — in other words, higher prices.
Alongside higher interest rates and now onerous fire insurance premiums, which make home improvement loans more expensive, home prices have dipped from their 2022 peak. This means home equity lines of credit (HELOCs) used to fund improvements (and gambling jackpots) are also losing their ATM effect for owners as home equities recede and prices pull back from their May 2022 peak.
The final blow to many home renovation plans are the reduced savings rates of 2023, with homeowners’ access to cash decimated by the continuing high inflation rate in 2021-2023.
Taken together, even when homeowners prefer to renovate, they often balk, unable to proceed due to this fatal combination of financial constraints.
But in 2023, many homeowners are also unable to sell since they cannot purchase suitable replacement property at today’s interest rates — let along upgrade. But that too is shifting. Property prices sought by sellers are steadily correcting, pivoting to meet wage and mortgage rate limitations imposed on purchase-assist funding for buyers from lenders.
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Unable to sell-and-relocate, and with a decreasing ability to finance home improvements, watch as a winter of diminishing turnover rates settles in over the housing market in 2023 and beyond. Stuck in place, many homeowners will not sell until they absolutely must — in this case, once job losses begin to pile on during the 2023-2024 recession and negative equity homeowners are forced to sell or default before moving on.
When this happens, perceptive real estate agents will be prepared with the savvy to assist distressed sellers and cautious buyers faced with:
- homes in foreclosure;
- short sales
- real estate owned (REO) property; and
- conventional sales.
Read more about maintaining fee-based income during this progressing real estate retreat by subscribing to firsttuesday’s free newsletter, Quilix, for frequent updates.
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