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Big Equity Gains For Homeowners Bode Remodeling Demand Surge

Here's three reasons why -- including a $200,000 windfall in home equity gains over the past few years to a typical mortgage holder -- remodeling businesses may thrive while new home construction slows down considerably for the near-term future.

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Big Equity Gains For Homeowners Bode Remodeling Demand Surge

Here's three reasons why -- including a $200,000 windfall in home equity gains over the past few years to a typical mortgage holder -- remodeling businesses may thrive while new home construction slows down considerably for the near-term future.

Together with
June 14th, 2022
Big Equity Gains For Homeowners Bode Remodeling Demand Surge
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$200,000

Let’s face it. Housing, after its long 10-year run, is headed for a garden variety cyclical slowdown. Not a cataclysmic crash like what occurred in 2008, but a sharp slowdown.

All the signs point to that. For example:

And here’s the killer. Builders, an optimistic lot by-and-large, have become, according to the NAHB/ Wells Fargo Housing Market Index, increasingly pessimistic about market conditions six months hence. And this Index has been a very reliable leading indicator of housing activity for 15 years or so.

Enough of the bad news.

Here’s the good news. The remodeling market, housing’s often overlooked little brother, is set to boom. That might not much matter to big builders, but it’s potentially really good news for remodelers, custom builders who can shift gears, as well as building product manufacturers, building product dealers, subcontractors and designers.

That $200,000 number that headlines this column in large part explains why the remodeling market is positioned to prosper. That’s how much “tap-able” home equity the average mortgage holder has, which means that’s how much the average mortgage-holding homeowner can borrow against his/her home, which in turn means the average homeowner can borrow enough to substantially improve an older home.

A fair question: why would  a homeowner go through the hassle — and it is a hassle — of remodeling instead of buying a new home that already has a fancy kitchen and bath and the kind of open plan that most of today’s buyers want.

Well, here’s one reason why. According to a recent article in the New York Times

in this market it makes less and less sense to move… when four in five mortgage holders today have an interest rate under 5 percent (half have a rate at 4 percent or lower.”

Here’s another reason. The annual rate at which Americans have been moving has declined steadily since the 1980s, declining from 20% to 8% last year.

Then there’s one more reason. More and more Americans are working at home, and most of them want to keep working at home at least some of the time. That’s likely to mean more homeowners will remodel to create pleasant, efficient and private work spaces. And, hey, while they’re at why not spiff up the kitchen and enlarge the family room.

Another housing industry organization I’ve been involved with for 25 years and have come to trust is Harvard University’s Joint Center for Housing Studies. The Joint Center forecasts a 14% increase annual increase in remodeling activity.

So if you’re a big or small builder, a building product manufacturer, a dealer or a subcontractor you should prepare for a what seems like an inevitable slowdown in new housing activity. But at the same time you should take a long, hard look at the remodeling market, which seems poised to prosper as new home construction slows to a trickle.

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ABOUT THE AUTHOR

Former chairman & CEO of Hanley Wood, Frank Anton is one of housing’s iconic voices. Currently, he’s advisor to several housing organizations, and is a member of Harvard’s JCHS Policy Advisory Board.

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Since 1873, Kohler Co. has been improving the level of gracious living by providing exceptional products and services for our customers’ homes and their lifestyles.

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