Homeowners are hitting the pause button on remodeling projects, which may prompt home renovation activity to fall to its lowest level in three years, according to a new report from Harvard University’s Joint Center for Housing Studies.
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“Remodeling activity tends to go hand-in-hand with home sales, so when a homeowner is preparing their home for sale they’re likely to do some work just getting their home ready for the market,” Abbe Will, associate project director at the center, told CNBC. “Then really in the first two or three years after purchase, that new homeowner typically spends quite a bit more on home improvements, making that home kind of fit their needs, customizing it, maybe doing some work before they even move in.”
Indeed, new homeowners spend about 30 percent more on remodeling a newly purchased home than a longtime resident does, according to the center. Most homeowners tend to use home equity—either through a cash-out refinance or a second line of credit—to fund their renovation projects. But with home values softening, they may be less inclined to take money out, Will notes.
In addition, higher mortgage rates make tapping home equity to pay for renovation projects more costly. On top of that, material costs are also on the rise.
“If they’re going to do a cash out refi, or they’re looking at a home equity loan or line of credit, I think the sentiment is that homeowners are taking a pause and wondering if that’s really the right move right now, and then thinking, we don’t have to do this major discretionary project now,” Will says. “We can put that off and see what’s happening with the market.