Building ProductsNational Housing Market Outlook

The Rich, Frustrated, and “Locked In” Turn to Remodeling

Eric Finnigan photo
Matt Saunders photo

Eric Finnigan

Matt Saunders

April 22, 2022

Building material prices have risen 23% over the last year according to production builders, in part due to a surge in remodeling driven by 3 primary conditions:

  1. Rich homeowners. Home equity per owner hit a record high of $315K, an inflation-adjusted increase of $95,000 over 2019! Inflation-adjusted checking account cash balances per capita have increased by 4X as well.

  2. Few “trade-up” homes available. Faced with the reality of living in their current homes for longer due to lack of homes for sale, frustrated homeowners are choosing to customize, update, and upgrade.

  3. Rising mortgage rates. The increase in mortgage rates has effectively “locked in” current homeowners by offering a huge financial incentive to stay in their existing home that has a low mortgage rate, versus moving to a new home with a much higher mortgage rate. 72% of outstanding mortgage borrowers are “locked in” with rates below 4%, creating a powerful incentive to stay in place and remodel.

At 1.6 months of supply, the current inventory of existing homes for sale is at the lowest level in history, severely limiting choices for would-be home buyers. To accommodate demand for additional space and functionality, particularly with today’s surge in work-from-home trends, big remodeling projects have been surging.

Remodelers have never been busier. 48% report doing more projects than one year ago, and 65% report that the projects are larger than one year ago.

Debunking Existing Home Sales as a Predictor of Remodeling Spending

Most Wall Street analysts will tell you existing home sales is the best predictor of remodeling spending. The rationale is that sellers will invest in upgrades like floors and paint before listing to increase their home’s market value, and buyers will upgrade after purchasing. However, our analysis shows this overstates the importance of this indicator, given the approximately six million existing home sales each year compared to the $400 billion remodeling market.

In a low inventory situation, such as today, the relationship has broken down completely. Below we show a statistical measure of the declining importance of existing home sales.

18% of recent new home buyers purchased their home with plans to accommodate an adult child, elderly parent, or other family member / friend.

Shining a light on the 400-billion-dollar question everyone is asking: What will slowing home sales mean for remodeling spending?

We expect existing home sales to decline in 2022, given continued extremely tight inventory and a payment shock from rising mortgage rates. However, even with a decline in existing home sales, we forecast continued growth in remodeling spending, especially on large, professional contractor-intensive projects.

Going forward, longer-term structural factors will drive remodeling demand, assisted by shorter-term cyclical drivers, including:

  • Wealth from home equity

  • Age of the existing housing stock
 
  • Home price appreciation
 
  • Reduced mobility for the majority of owners who will stay in their home
 
  • Continued spending from remodels currently in progress

Interested in a deeper dive on this topic and our complete building products outlook and spending forecast? Ask us about our Building Products Industry Analysis & Forecast report, available to JBREC clients on April 29.

Building Market Intelligence™

Every week, we deliver analysis to over 40,000 subscribers with our Building Market Intelligence™ newsletter. Subscribe to our weekly BMI newsletters to stay current on pressing topics in the housing industry.

About The Author

Eric Finnigan photo
Eric Finnigan
Vice President of Demographics Research
Eric co-leads demographics research at JBREC, helping clients understand how trends in population, households, and migration impact housing demand. He also oversees the US Remodeler Index, a quarterly survey covering the residential remodeling industry.
Matt Saunders photo
Matt Saunders
Senior Vice President of Building Products Research
Matt leads JBREC’s building products research practice, which includes overseeing our research reports, our macro building products thesis and forecasts for both repair and remodeling and new construction.

Contact Us

If you have any questions about our services or if you would like to speak to one of our experts about we can help your business, please contact Client Relations at clientservices@jbrec.com.

Products and Services Mentioned

green check icon

Building Products Package

Our building products subscription provides unparalleled expertise and a unique specialized perspective on new construction and remodeling, backed with exceptional data, for business planning and investor relation support. this is a test content
green check icon

New Home Trends Institute

The New Home Trends Institute pairs design inspiration with exclusive insights into the “why” behind consumers’ housing choices. Gain exclusive insight into housing preferences and pain points through our monthly survey insights reports, webinars, and proprietary surveys of builders, architects, designers, and other industry professionals.
green check icon

Building Products Consulting

Our building products team is comprised of industry experts with diverse sector and functional experience. We partner across organizations to provide custom consulting reports to aid organic and inorganic investment decisions, strategic planning, and marketing.

Latest Insights

Unlocking the Potential of Generative AI and Large Language Models for Your Business
Dear Consultant: How do we get more inventory so that the housing market has more slack?
Busting Gen Z Myths—What the Housing Industry Needs to Know