Next Year Could Be Another Big One for Home Renovations. Here’s Why. | Global News Avenue

High mortgage rates and home prices are causing many Americans to stay put and upgrade their homes rather than move. Experts say this could continue until 2025.

By some estimates, homeowners have trillions of dollars of accessible equity in their homes that they can use to obtain a home equity line of credit (Hurlock) to help fund the renovation project. At the same time, some housing market observers believe the aging U.S. housing supply is ripe for renewal.

“For most people, it doesn’t make financial sense to move,” said Ben Carlson, director of institutional asset management at Ritholz Wealth Management. “So if people are going to be in their homes longer and they have all these assets, it’s going to be difficult for a lot of them to ignore,”

Goldman Sachs economists say home improvement spending will grow at an annualized rate of 8% in the first half of 2024, saying in a recent report that rising home equity “provides fuel for continued spending growth.”

Rising home values ​​and low mortgage rates are keeping homeowners in their place

Americans’ home values ​​are rising as competition intensifies in the post-pandemic real estate market. According to the National Association of Realtors, the average homeowner gained $147,000 in housing wealth over the past five years.

With home values ​​reaching all-time highs, more homeowners are purchasing HELOCs. As of November, homeowners held $11.2 trillion in available equity, the portion of equity available to homeowners, according to ICE Mortgage Technology, a housing and mortgage market data service.

Meanwhile, homeowners who locked in low mortgage rates during the pandemic are reluctant to give up what is now a higher rate. Goldman Sachs research shows that 85% of mortgage borrowers have interest rates below current market levels.

This encourages homeowners to stay put longer. According to TD Bank, three out of five homeowners say low mortgage rates influenced their decision not to sell their home and instead increase their home’s equity.

Mortgage rates next year are expected to be just above 6%, lower than in 2024 but still higher than most homeowners’ mortgage rates, according to NAR.

“With most homeowners locked into low-rate mortgages, lower interest rates could disproportionately increase renovation spending,” Goldman Sachs economists wrote.

Experts predict home renovations will continue to be popular in 2025

Decoration is very popular recently. More than half of homeowners say they completed a major home renovation within the past two years, according to a Nationwide Insurance survey.

But they can also be expensive. According to Clever Real Estate, approximately 78% of homeowners undertaking major renovations went over their budget, and nearly two-thirds went into debt to finance the renovations. According to TD Bank, more than half of homeowners who take out a home equity loan use it for renovations.

“A home equity loan is often recommended for homeowners who want to remodel their home because you can add value to the home, which, in theory, will help you when you eventually sell or pass the home on,” Carlson says.

While lenders don’t allow borrowing on all equity, home equity levels rose to their highest on record in October, totaling $35.1 trillion, according to Realtor.com. Lowe’s Company (low) executives recently said they expect home values ​​to continue to appreciate and personal disposable income to outpace inflation.

At the same time, they said the median age of homes will reach 41 years old in 2024, the oldest median age in U.S. history, and will continue to age and require renovations.

“Existing homeowners will likely continue to invest in home repairs and upgrades, especially as interest rates As pressure eases, we expect homeowners to begin leveraging record $35 trillion in home equity to fund larger home improvement projects.”