Homeowners have been hesitant to open their wallets for renovations, but a new study shows that spending on home improvements is set to accelerate through at least the third quarter of 2013, the New York Times reported. The projections reflect rising home sales and construction, and low financing costs, said Kermit Baker, director of the Remodeling Futures program at Harvard University’s Joint Center for Housing Studies, which conducted the study.
“All the elements are sort of pushing in the same direction,” Baker said.
While spending on improvements and maintenance has been down since 2007 when it peaked at $328 billion, in 2012 it very likely rose about 12 percent, according to the center’s data.
Mark Yecies, an owner of SunQuest Funding in Cranford, N.J., told the Times that construction loans for major additions are especially hard to come by, because lenders typically require that borrowers have 25 percent to 30 percent equity, based on the finished value.
Borrowers with negative equity — or with houses worth less than their mortgage balance — cannot get any sort of improvement loan, Yecies noted.
Greater equity, however, leads to more spending on home improvements. According to the Harvard study, homeowners with at least 20 percent equity spend an average of 22 percent more on improvements than homeowners with lower equity levels.
The decline in home values during the last decade will benefit the remodeling industry in the next decade, the Times noted. Tom O’Grade, the chairman of the strategic planning and research committee of the National Association of the Remodeling Industry, predicted that as baby boomers head toward retirement, more will probably decide to renovate rather than sell or buy. [NYT] –Hayley Kaplan