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The other side of the housing boom is here: home-renovation projects.
As Americans were left with more time on their hands and more time in their houses, they began fulfilling their wildest HGTV fantasies. Home improvement and repair spending grew by nearly 3% to $420 billion in 2020, per a recent study by Harvard University’s Joint Center for Housing Studies (JCHS).
It’s only the beginning of the home improvement boom. Abbe Will, one of the report’s researchers, told Insider they expect the home remodeling market to expand even further in 2021 — by 4% — as homeowners complete discretionary and deferred projects.
When the pandemic hit, the remodeling market crashed before bouncing back stronger than it was pre-pandemic. “People did not want contractors in their homes, but that recovered very quickly,” Paul Emrath, vice president of surveys and housing policy research at the National Association of Home Builders (NAHB), told Insider. “It was a very sharp V-shaped recovery.”
The surge isn’t just a newfound pandemic hobby or some post-pandemic repair, but a natural evolution of a very heated housing market. Remote work, the desire for more space, and low interest rates made real estate the hottest commodity of 2020. The demand for housing, led by millennials, exacerbated a shrinking housing inventory and caused prices to skyrocket to record highs.
But within the home improvement boom is a generational divide. Many millennials, facing their second housing crisis in 12 years, largely resorted to buying fixer-uppers — all they could afford — and now they’re staring down major renovations as prices surge for all the materials they need. Boomers, on the other hand, chose to stay put and invest in a remodel rather than engage with a scorching real-estate market.
While the DIY boom brings the kind of stimulative spending the reopening economy needs, it’s hurting the wallets of those already struggling to afford homeownership: millenials.
The home improvement boom
Baby boomers with equity led the home improvement boom, both Emrath and Will said, driven by newfound time on their hands, the desire to stay in their homes, and the historic housing shortage. With moving to a different place in such a cutthroat market an unattractive option and the value of homes going up amid increasing housing prices, they became more willing to spend on remodeling than past generations.
“If you think about wealth, we had strong house price increases with past year,” Will said. “Homeowners had more equity in their homes.”
JCHS found that by late March, 60% of survey respondents had already started at least one DIY home project. By early May, that jumped to nearly 80%. Spending on home improvement overall increased by 7% in the latter half of 2020 and early 2021, per a February Bank of America note.
Emrath forecasted 9% growth in the home reno market this year, and another 4% in 2022. He said the major headwinds are supply-side obstacles and availability of labor, but that thinks the strong demand for remodeling will outweigh both.
Millennials are also giving the remodeling market a lift. Households under age 35, traditionally the most active group in the DIY market, have been increasing their spending on professional installers as they get older, according to JCHS findings. Home improvement in 2020 was typically stronger in major metros with more young homeowners: Remodeling permits rose 2% on average in metros with an above-average share of homeowners under age 35, but fell 2.7% on average in metros with a below-average share.
DIY renovation became a new form of discretionary spending during the pandemic for wealthy millennials, who no longer had travel and brunch to spend on. But it also became a way for the less wealthy subset of the generation to get their hands on a house.
Look no further than Instagram account Cheap Old Houses, which highlights historic homes that cost no more than $100,000 to buy — it’s followers upticked from 75,000 to 1.5 million since the start of the pandemic. Founder Elizabeth Finkelstein told The New York Post in August the account makes homeownership more attainable for millennials.
In BofA Research’s sixth annual millennial home improvement survey, released this month, 82% of millennials said they’re more likely to buy a fixer-upper than a newly built home amid the shrinking housing market. It suggests that some millennials who are unable to outbid all-cash offers are resorting to buying old homes and renovating them.
A new kind of affordability problem
The catch in 2021 is that DIY home renovations aren’t as affordable as they used to be. That may not break the bank for older renovators with equity, but it could seriously disadvantage first-time homebuyers like millennials.
Many of the costs involved with renovating a house such as wood and big appliances are getting hijacked by the series of shortages and shipping delays hitting the economy, sending up the price for materials from lumber to semiconductor chips. The home-improvement projects most in demand cost less than $20,000, per NAHB data, although large-scale remodels costing $50,000 are also more popular.
There’s also the fact that those who bought homes last year are likely now facing more expensive renovations this year, having checked off their smaller to-dos first. Half (52%) of millennials started their home improvement projects within six months of their purchase, per the BofA survey, and many have already completed smaller, more budget-friendly projects such as painting and landscaping but haven’t yet finished larger projects like bathroom and kitchen remodels.
While Emrath said he’s seen these types of projects under way already in 2020, Will said he anticipates even more of them this year, along with more elevated DIYs compared to historical norms, further fueling the home reno boom. While many millennials are comfortable DIYing many of their home renovations like painting and upgrading appliances, according to the survey, they’re less at ease with more complex projects like altering floor plans and roofing.
That leaves some taking out loans for more complex projects. For the first time in the history of the annual survey, BofA found that millennials are using loans more frequently than cash to fund projects exceeding $10,000. When BofA last conducted the survey in 2017, only 34% were using loans for home improvement. Today, 42% of respondents are.
That might be because renovations on older homes can exceed six figures. One 27-year-old who bought a Victorian home for $18,500 she found on Cheap Old Houses told the Post her estimated renovation budget would total $125,000.
That is all to say, millennials are living in fixer-uppers they can’t afford to fix up.
Millennials can’t catch a break in real estate
Now, not every first-time homebuyer has their eye on a new tile backsplash or installing a laundry room. As Will explained, many are often more concerned with the down payment and acquiring the property as opposed to investing in home improvement projects.
But in today’s tight market, the focus on attaining a house can mean the only ones left up for grabs for younger homebuyers are older houses that need work and repair. Even if millennials are house hunting without the intention to renovate, they may find themselves with no other option.
Even first-time buyers who didn’t buy fixer-uppers are likely to still turn to home improvement projects. “There are things that people usually do when they buy an existing home,” Emrath said. “So they spend more on remodeling projects in the year after they buy the home than they do in a typical year when they’re owning the home.”
While some buyers might have leftover funds after buying a cheaper house, they may not be enough to cover all the costs to make the house liveable. It’s the latest way millennials are getting screwed in the housing market. Fixer-uppers have served as an alternative, seemingly more budget-friendly option at a time when homes are flying off the market after getting nearly five offers on average.
This alternative seems to have left much to be desired. Nearly two-thirds of millennials have new homebuyer regrets, a new Bankrate survey that polled 1,400-plus homeowners found. Just over 20% cited maintenance and additional costs as the reason why.
When it comes to the housing market, millennials are hitting every branch on the way down.