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Home remodeling is slowing down, but ‘historic boom' is coming

Americans looking to remodel their home are pulling back, but better days are ahead for the industry.

"Remodeling is slowing, but there's a historic boom coming," Eric Finnigan, VP of research & demographics at John Burns Real Estate Consulting, told Yahoo Finance in an interview.

According to Finnigan, there are three factors likely to help this sector in the coming years.

First, there's an expectation that the residential remodeling market will have 24 million homes in need of repairs or upgrades to roofs, floors, heating and cooling system, kitchens, bathrooms, and more.

“[These homes are] basically going to go through a complete sort of facelift,” Finnigan said. A home enters its "prime modeling years" when it reaches about 20-40 years old.

“We're seeing a big wave of homes entering that cohort, [those] sort of prime remodeling years,” Finnigan said.

Second, three-quarters of mortgage borrowers are locked in with mortgage rates at 4% or lower, and will likely stay put for as long as possible. But those homes will also need an upgrade, Finnigan said.

And finally, homeowner equity is at record levels, providing homeowners the means to pay for renovations projects now or in the future.

Kate and Cameron Reinhart stand in their 1880's Octagon house they are renovating during the coronavirus pandemic, in Norwich, eastern Connecticut, U.S., January 14, 2021. Picture taken January 14, 2021. REUTERS/Dan Fastenberg
Kate and Cameron Reinhart stand in their 1880's Octagon house they renovated during the coronavirus pandemic, in Norwich, eastern Connecticut, U.S., January 14, 2021. Picture taken January 14, 2021. REUTERS/Dan Fastenberg (Daniel Fastenberg / reuters)

Home improvement slowdown

Though expectations for remodeling in the future may be high, current dynamics in the market have seen these projects put aside in recent months.

On Tuesday, Home Depot (HD) warned in its latest earnings report the company expects demand for home improvement to "moderate."

"In the third quarter, we noted some deceleration in certain products and categories, which was more pronounced in the fourth quarter," Home Depot CEO Ted Decker told analysts on the company's earnings conference call on Tuesday.

Comparable sales in the U.S. fell 0.3% for Home Depot in Q4, missing expectations for a 0.3% gain, according to estimates from Bloomberg.

Home renovations, particularly DIY projects, boomed during the pandemic as many Americans were stuck at home trying to tackle eyesores in their homes. But demand for those DIY projects have been plagued by elevated inflation and a shift in consumer habits.

"The amount of time people are spending in their home is a direct relationship to how much they're willing to spend on the home," Finnigan said.

Data from John Burns Real Estate Consulting showed Google searches for discretionary home improvement projects are moving back to 2019 to 2020 levels.

The number of consumers "wanting" to do a kitchen or bathroom remodeling has tanked since peaking in 2021, while projects like replacing siding or a roof are seeing steadier search interest.

Home Improvement Google Search Interest:
Home Improvement Google Search Interest: "Want" projects vs. "Need" projects. (Source: John Burns Real Estate Consulting) (Source: John Burns Real Estate Consulting)

High inflation has also taken a toll on DIY spending.

Customers have become more price sensitive as essentials like food and rent have become more costly. Home Depot said the company is seeing "more sensitivity" as consumers tighten their spending.

For professionals working in remodeling, customers are trading down in product quality to stay on budget with 60% of respondents to a recent survey from John Burns Real Estate Consulting reporting this behavior.

Remodeling customers becoming more price sensitive
Remodeling customers becoming more price sensitive. (Source: John Burns Real Estate Consulting) (Source: John Burns Real Estate Consulting)

Still, Finnigan expects demand for projects to remain robust in the years ahead as housing turnover slows amid higher rates and an aging housing stock.

"There's fewer listings out there, fewer listings of homes, fewer homes sold, but [the] underlying demand for remodeling is higher than it's been probably for a decade," Finnigan said.

"And it's going to be higher for longer."

Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv

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