Low Home Costs and Mortgage Rates Help Spur Remodeling Industry
After several years in the gutter (right behind the mortgage industry) the home improvement industry is expected to finally start picking up, thanks to rebounding home sales and low mortgage interest rates. The Harvard University Joint Center for Housing Studies reported points to these factors as evidence that more Americans will be opting to finance housing renovations in 2013.
Spending on home improvements has been on the decline since the mortgage market started showing signs of trouble in 2007, that year Americans spent over $325 billion in renovations. Since then, the most Americans have spent has been $275 billion in 2011. The study expects that number to grow by 12% in 2012.
Home improvement loans, however, are not expected to enjoy the same resurgence. For banks to offer a homeowner a remodeling loan, they usually require the borrower to have at least 25- to 30% equity in their home. Almost a fourth of all homeowners in the United States had negative equity in 2012. Those homeowners who do have more than 20% equity in their homes are 30% more likely to pay for home improvements.
The good news is that over 1.4 million Americans crossed the line from negative to positive equity in 2012. Now, low home values - the original cause of the decline in home improvements - will actually help the industry, as those new buyers who take advantage of the low sales are then more willing to spend on renovations.
Low home prices will also increase the probability of investors buying cheap homes to remodel and quickly flip for profit. This is welcome news that has seen massive layoffs and work shortages since the market crash in 2008.
According to the National Association of the Remodeling Industry, customer inquiries were up 2% in the 4th quarter of 2012, and the total value of contracts agreed to was up 4.3%. Slowly but surely, the U.S. mortgage market and national economy are showing signs of sustained stability that will inevitably generate growth. Mobilizing the spending patterns of 315 million people, and millions of companies, will take time, so remember that patience is a virtue.
By: Javi Calderon
