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Housing Supply Shortages: 4 Implications for the Home Improvement Industry

September 17, 2021

Housing Supply Shortages: 4 Implications for the Home Improvement Industry

If it felt like everyone was renovating earlier this year, that’s because they largely were. Fueled by a strong housing market and a recovering economy, year-over-year consumer spending on home renovation and repair increased 3.5% in 2020 and is expected to increase another 3.8% by the end of 2021.

The pandemic put a squeeze on the housing supply as some would-be sellers chose to hunker down instead, but the root causes of the shortage are more complex. One other reason is that new construction of single-family homes has been declining for years—since long before COVID-19 began to affect every aspect of the economy.

While there are signs that the “sellers’ market” is beginning to cool down, the lack of housing supply is predicted to continue for years. Here are some trends that retailers in the home improvement industry will want to watch.

Home equity is at a record high

A recent report found that the average homeowner in the U.S. has $153,000 in available home equity—an all-time high! When homeowners do take out home equity loans, they aren’t using them for “frivolous” purchases like vacations. The same study found that most home equity is reinvested into home repairs and improvements.

Key implication for retailers: consumers flush with home equity cash may be looking to reinvest in home renovation projects.

Interest rates remain attractively low

Some consumers are understandably skittish about taking out home equity loans, given the unpredictability and uncertainty seen during the past year and a half. Many are opting to increase their household’s cash flow by refinancing their mortgages and taking advantage of the low interest rates. In June of 2021, 42% of homeowners who refinanced their mortgages extracted cash, giving many the “cushion” they need to feel more comfortable about their financial health.

Concerns about the Delta variant and the slowing job market have kept rates low, for now. While that’s not great news for the economy as a whole, it allows more time for consumers to take advantage of these historically low rates.

Key implication for retailers: low interest rates and other temporary measures (like Fannie Mae and Freddie Mac dropping the 0.5% refinancing fee) are incentivizing many homeowners to refinance and redirect money to improvement projects—for now.

Experts don’t predict another 2008

Buyers, who are increasingly delaying home purchases amid sky-high prices, have recently caused the housing market to cool down. But most experts don’t believe that another “burst bubble” is imminent.

Even though many potential buyers remain on the sidelines as they keep an eye on the market, that market still has a lot going for it. More Millennials are reaching their thirties—the peak homebuying years—and homeowners generally spend far less of their income on housing than in 2008.

Key implication for retailers: while home improvement spending could cool along with the housing market, experts don’t expect a full-on crash.

New homebuyers raise their standards

While stories of bidding wars and increased recklessness made headlines during the peak of the housing shortage, there could be a longer-term shift in home standards due to the pandemic. After all, with more people working from home (and spending more time there than ever), the importance of home comfort is magnified.

Key implication for retailers: more home buyers may expect luxury features like home offices to be “standard.”