Home Improvement Lending Will Boom with Remodeling
Remodeling activity is expected to gain steam over the next 12 months as more and more owners regain some—or perhaps all—of the equity they lost in their homes during the recession.
The latest forecast from the Remodeling Futures Program at Harvard University's Joint Center for Housing Studies is that spending on new roofs, kitchen updates and other projects will accelerate at the year progresses. And that, in turn, means an increase in home improvement lending.
"Existing home sales were up almost 9% last year, and house prices are increasing in most markets across the country," said Eric Belsky, managing director of the Joint Center. "This has increased the home equity levels for most homeowners, encouraging them to reinvest in their homes."
By the fourth quarter of 2013, the program expects home improvement spending to reach an annual rate of $150 billion.
Current conditions are "world's away from March of last year," says Tom O'Grady, a spokesman for the National Association of the Remodeling Industry.
"Remodelers nationwide are not only experiencing increase activity right now," the Drexel Hill, Pa., contractor says, "but many have a backlog of projects [that will take them] well into the fall."
According to the latest report from HUD, FHA has backed 6,855 Section 203(k) home improvement loans so far in the current fiscal year. That's 17.7% fewer than during the same October-January period in fiscal 2012, when the FHA insured 7,996 rehab loans.
In all of fiscal 2012, the FHA insured nearly 22,500 203(k) mortgages.
According to the Census Bureau's American Housing Survey, well over half the country's homeowners made improvements to their homes in the two years between 2009 and 2011, the last years for which it has collected information. And that does not include routine maintenance.
Of the 43.7 million owners making improvements, almost one in four upgraded their energy efficiency, the AHS survey found. More than a third replaced their appliances or major HVAC equipment, slightly less than a third changed their flooring, roofing or paneling, and 20% upgraded their windows and doors.
Owners spent a median of $3,200 on improvements, according to the survey, which is administered jointly by Census and the Department of Housing and Urban Development. But their expenditures varied widely, depending on the various types of projects they undertook.
For example, they spent a median of $5,000 to rework their kitchens, $3,600 on their HVAC equipment and $2,432 to remodel their bathrooms. The median payout for doors and windows was $1,200, whereas the median for roofs topped $4,500. The biggest expenditure, however, came from adding a garage, at a median of $15,000.
Overall, 7.5 million owners spent $43.7 billion for new roofs, 3.7 million laid out $35.7 billion to remodel their kitchens, 9.8 million paid $34 billion for new HVAC equipment, and 18.8 million spent $33.2 billion on their flooring, paneling or ceilings.
Also, 8.9 million owners spent $24.1 billion on windows and doors and 5 million paid $23.1 billion on bathroom remodels.
In total, according to the AHS survey, owners spent a collective $359 billion over the two-year 2009-2011 period. And almost two-thirds of the work was done by professionals.
Back to the future, O'Grady says the increase in inquiries and requests for bids speaks directly to improved consumer confidence, especially in housing.
According to the group's first-quarter surveys, improving home prices and the need to make postponed projects are driving the market.
Owners who have decided to stay put in their homes rather than move are tired of waiting to make improvements and "better financial positioning has them actively approaching professionals to get work done," O'Grady says.