I just finished teaching a class at The College of San Mateo about financing home improvements. The experience of teaching the class confirmed what I’ve observed anecdotally – many families are considering the benefits of home improvement over “buying up” these days.
Now the Joint Center for Housing Studies at Harvard University has come out with a nice report further confirming this idea, and putting numbers to it. The growth rate, according to their Leading Indicator of Remodeling Activity, will nearly triple by next year.
“Home improvement spending continues to benefit from the last years’ upswing in housing market conditions including new construction, price gains, and sales,” says Chris Herbert, Managing Director of the Joint Center. “Strengthening housing market conditions are encouraging owners to invest in more discretionary home improvements, such as kitchen and bath remodeling and room additions, in addition to the necessary replacements of worn components, such as roofing and siding,” says the report, published Thursday, October 15, 2015.
This confirms much of what I’ve been noticing and saying. With a dearth of listings and a hyper-competitive sellers’ market, many homeowners decide it makes no sense to pull the trigger and move up. Instead, they are choosing to stay put and improve what they already own.
Further, many of my young first-time-homebuyer clients are very different than those I worked with in the past. These are young engineers who have large down payments, abundant income, and little or no debt. These folks often buy any home they can manage to make a successful offer on, knowing that they will spend time and money making it the way they want.
In the past, many of my clients would ask me which home improvement projects were most likely to pay off, especially if they were financing them. Now that seems to be a lesser concern, as the goals of home improvement plans seem to be shifting to creating a home of their dreams, and not so much trying to make money on the improvements.
In general of course this is a good thing. Homeowners get the home they want, neighborhoods are improved, contractors stay busy, and the economy is juiced a little. It’s a win-win.
The downside has been something I’ve raised concerns about for a long time. Especially if the home improvements are more than what the homeowner can afford to pay for in cash, homeowners tend to finance them. Not a problem, except that in most cases homeowners lump all of their dream projects together, and then finance their home improvements for longer than the life of some or most of the improvements.
I covered this topic before in a post in May of last year. There is a solution if this is a concern for you.
In the meantime, if you are considering major home improvements and want to know how to finance them, please call and let’s go over your options. It depends on many factors, and like almost all situations, there is no one right way for everyone.
To read the entire article from the Joint Center for Housing Studies at Harvard University, click here.