Will Lower Interest Rates Fuel a Home Remodeling Rebound?

With a boost from lower borrowing rates, spending on home improvements and repairs is set to expand once again by the middle of next year, predicts Harvard University’s Joint Center for Housing Studies.

Beyond Home Depot and Lowe’s, a pick-up in home renovation projects packs a major benefit to hardware stores and home furnishing retailers as well as sellers of outdoor grills, pools, and major appliances.

Harvard’s Leading Indicator of Remodeling Activity (LIRA) report projects that annual expenditures for home renovation and maintenance will grow by 1.2% through the third quarter of 2025.

That’s skimpy growth compared to the heady days of the pandemic when rock-bottom borrowing rates and stay-at-home orders led many homeowners to invest significantly in home upgrades. Some renovations were motivated by those looking to sell amid surging home prices.

Elevated home values have also made it more lucrative to borrow against homes to fund renovation projects. The Federal Reserve reported that homeowners now had more than $35 trillion in home equity as of the second quarter of 2024, up 81% from the end of 2019.

Year-over-year four-quarter spending growth on home projects and repairs peaked at 17.2% in the third quarter of 2022, according to Harvard’s Joint Center for Housing Studies data, before steadily seeing slower growth and then declines so far in 2024 as interest rates have been increased to counter inflation.

In making its prediction for improved home renovation spending, Harvard’s Joint Center for Housing Studies cited signs of recovery in new home construction and sales of existing homes, as well as the continued healthy gains in home values that should be boosted by discretionary and “need-to-do” replacement projects for owners not looking to sell their homes.

Abbe Will, the research group’s associate director of the Remodeling Futures Program, said in a statement, “A quick return to growth after a fairly modest downturn ultimately means that residential remodeling and repair expenditures are expected to approach past peak levels moving forward.”

Future renovation growth may still face challenges, however, as many homeowners “pulled forward” necessary repairs and long-desired renovations during the pandemic.

Ermanno Affuso, professor of economics and finance at the University of South Alabama in Mobile, also believes home renovation is often driven by a “social component,” including seeing neighbors or hearing about friends upgrading their properties. He recently told USA Today, “Factors such as income, interest rates, and intangible factors like sentimental value and rational expectations all play a role in driving the growth in home renovations.”

A recent survey from the brokerage Clever Real Estate of 1,000 U.S. homeowners found that 63% would rather remodel their current homes than move into a home that’s already been renovated.

Homeowners surveyed were fairly split on why they were renovating. Given a choice of multiple options, to repair damage and for increased comfort were both tied as the primary reason, cited by 35%, followed closely behind by a second tie — improve the livability of their home and enhance their home’s aesthetic appeal — at 32%. Meanwhile, 31% renovated to personalize their home, and 30% said it was to increase their home’s value.

Yet some homeowners who completed renovation and maintenance projects faced struggles, with 41% reporting significant delays in the work and 78% admitting to going over budget on their last renovation project.

Some looking to undertake major renovation projects may be looking for even lower borrowing rates. The 30-year mortgage rate in the U.S. has come down from a recent peak of around 8% in late 2023 to the mid-6% range but remains about double the borrowing rates in 2020.

In a twist, those locked in with historically low mortgage rates will likely be more incentivized to expand or renovate the homes they already own rather than move into a new home for fear of losing the low rate, according to the Wall Street Journal. Brennan O’Connell, Optimal Blue’s director of data solutions, told the publication, “People aren’t going to get rid of their 2.5% or 2.75% mortgages, maybe ever.”