According to a March 2019 report by the Harvard Joint Center for Housing Studies (JCHS), the U.S. home renovation market has grown by more than 50 percent since 2010. The press release stated that “as home building struggled to meet the nation’s growing housing needs, spending on improvements and repairs to both owner-occupied and rental properties hit a record of nearly $425 billion in 2017.” The 2019 LightStream Home Improvement Survey supported these findings. Survey participants included 1,258 homeowners, 78 percent of whom plan to remodel their homes this year –– 26 percent more than in 2018. What does the uptick in home renovations mean for the housing market, and how will it impact residential developers in 2020? PWSC’s home builder structural warranty and risk management experts answer these questions and discuss how new construction home warranties can help attract buyers.
Why Homeowners Are Remodeling Instead of Moving
Before analyzing how an increase in homeowner renovations affects residential developers and the overall housing market, it’s important to discuss why people are choosing to remodel instead of move. In recent years, home prices have shot up due to a lack of inventory. Instead of competing with other buyers in a seller’s market, many homeowners are deciding to stay put and expand or remodel their current homes. Also, contrary to what many home builders expected, Baby Boomers are staying in their houses instead of moving into retirement communities and assisted living spaces. This has contributed to the shortage of available homes on the market.
The JCHS report notes that about 40 percent of residential properties in the United States are over 50 years old. Paired with low inventory in the housing market, the aging supply of homes has contributed to a boon for the remodeling industry. Also, as property values rise, homeowners have more equity, which allows them to take out home equity loans to fund their build-outs.
With that said, a skilled labor shortage still exists in both the home building and independent contracting industries. As a result of both a labor shortage and unlimited access to information in the digital age, many homeowners are opting for DIY (do-it-yourself) remodels. According to the LightStream survey, almost three-quarters of homeowners who plan to renovate expect to accomplish at least part of the project without hiring a professional. However, a January 2019 study by ImproveNet found that about two-thirds of those who attempted at least one DIY home renovation project in 2018 regretted one or more of their projects.
The Impact on New Home Builders
The home renovation trend weighs heavily on new home builders. When buyers are unable to find affordable new construction in sought-after neighborhoods, they are more likely to stay put and build out their current homes. For example, while aging homeowners require houses with accessibility and age-friendly safety amenities, they may choose to have these features built into their existing homes. First-time homebuyers who can’t find the type of new home they want within their budget or preferred neighborhood are purchasing real estate with plans to remodel. Buyers also desire homes with the attractive amenities, such as chef-friendly kitchens and flexible spaces. If home buyers choose new construction that doesn’t require any alterations, they will want to feel confident and protected in their purchase.
How Builders Can Incentivize Prospective Buyers with Structural Home Warranties
The news that many homeowners are choosing to remodel their current homes instead of purchasing new property may be concerning to residential developers. However, if the current home inventory is lackluster and a skilled labor shortage makes it difficult for homeowners to hire contractors, builders can incentivize buyers by offering turn-key construction. Furthermore, including a builder structural warranty in a buyer’s purchase package instills confidence in their investment.
Home renovations can be costly, time-consuming, and disappointing when they fail to meet expectations. With a home builder warranty, buyers can acquire new construction properties without worrying about structural defects or repairs down the road. Contact Professional Warranty Service Corporation to learn more about home builder warranties and other risk management solutions.