The inevitable rise in interest rates--and with it, the cost of mortgages--should benefit remodelers more than it will hurt them, a panel of experts convened by the Joint Center for Housing Studies (JCHS) of Harvard University predicted today.
"One of the pluses is that most homeowners in this country have purchased or refinanced at historically low rates," Kermit Baker, director of JCHS' Remodeling Futures Program, noted during a webinar convened to mark the release of the center's major new report on the state of the remodeling industry.
"Traditionally, you trade up to a home," Baker continued. "That implies you’ll have to cash in your low rate and get a mortgage at current rates. This will give some people pause."
Baker's view was seconded by fellow panelist Richard McPhail, a senior vice president at The Home Depot. "There’s something there in the mobility dynamic," he said. "If you have a low interest rate, you’re going to look to add to your home rather than trade up."
On the other hand, Baker said, home equity loans are based on short-term interest rates, which are influenced heavily by Federal Reserve activities. Increasing those rates--which the Fed is expected to do sometime this year--eventually will make home equity loans more expensive. That'll be a problem, Baker said, but it won't be a huge one because the majority of remodeling projects are paid for with cash.
Much of today's webinar touched on the major points made in the report, also released today: That spending nationwide on home improvement could easily exceed in 2015 the record of $324 billion set during the peak of last decade's housing boom; that baby boomers are a bigger influence on remodeling now but members of Generation X and millennials ultimately will surge in importance; and that high-income metro areas are re-emerging as leaders in home improvement spending.
Baker, McPhail, and Richard O'Reagan, the group president for global plumbing at Masco, all said they're seeing an increase in sales of higher-end, discretionary products. "Even in windows, we've seen the premium mix come back in," O'Reagan said. At the same time, Brad Segal, chairman of Rebuilding Together, echoed the report's findings that lower-income homeowners have suffered in recent years and are having a hard time keeping their homes in shape. "Homeowners spend a higher percentage of overall income on their home, so it’s a bigger burden," Segal said. "The same is true with senior citizens on pensions and disabled vets living on disability. They really struggle to make ends meet and often have to neglect home repair projects."
Panelists agreed with Baker that labor is the No. 1 issue facing construction today. "The construction labor force has traditionally looked a lot different than the overall work force," he said. "It’s relied on immigrants, foreign born, vocational and tech training as opposed to traditional post-secondary education. And there are hardly any women in construction. But it does demonstrate how we’re going to have to solve this problem: By attracting more immigrants, rebuilding vocational and technical training, and attracting more women."