Homeowners are starting to spend less on home improvements, and many contractors are beginning to wonder why.
According to a report that was recently released by Harvard University's Joint Center for Housing Studies, growth in remodeling spending is expected to decline in half of America's largest cities in 2019, to varying degrees. Of the 49 cities studied, spending growth on remodeling is expected drop relative to 2018 levels in 29 cities, and expected to hit its lowest point in three years in 22 cities.
For example, the annual growth rate in home improvement spending in the Washington, D.C. general area was 5% in the final quarter of 2018, and is now expected fall to 2% by the final quarter of 2019. In Boston, spending growth was already down to 2% in the last quarter of 2018, and is now expected to plateau in the fourth quarter of 2019.
Many industry experts have attributed this slowdown to a cooling housing market. High real estate prices in many cities are causing housing sales to slow down, which in turn is leading to a decline in remodeling spending, as well.
The dip in remodeling spending growth decline could be attributable to a combination of the decline in home sales and the rising interest rates that homeowners weathered last year. Although interest rates have since dropped in 2019, homeowners could still be feeling the lingering effects of last year's rate increases, and haven't adjusted to the new conditions. If people have recently felt a pinch in their pocketbook, they're generally not inclined to spend.
Although sluggish home sales could encourage homeowners to spend more on remodeling as opposed to moving, most remodeling typically occurs before or after a home is sold. People are either hoping to make their new home a better fit after buying, or they are looking to raise the property's value before selling.
The housing market got off to a bad start this year, with a 7% drop in new home sales in January 2019, according to MarketWatch. In April, existing home sales fell for the second straight month, and the National Association of Realtors has already confirmed that it expects sales to continue to stagnate this year.
However, there is some good news. The Harvard study also found that, despite the overall slowdown in growth, there was no city studied which saw a decline in remodeling spending amounts. And there are a few locations that are bucking the trend, with remodeling growth on the rise in certain cities, including Orlando and Las Vegas. Those areas have seen remodeling permitting, house prices and home-building pick up recently.
There's also the belief that further on down the road, an aging population could fuel more growth in the remodeling industry. By 2035, the U.S. Census Bureau estimated that there will be 78 million people over the age of 65 in the U.S. and 76.7 million under the age of 18, marking the first time in American history that older individuals outnumber children. Since older individuals are more likely to retire into the same home, we could see a large population of older folks spending more to upgrade their home for their golden years, rather than move somewhere else. In the not so distant future, this could prove a big advantage to home remodelers, and help make up for any lack of growth caused by diminished home sales.
Learn more about those advantages and the many other benefits of working with Aqua Finance by contacting us today.