Millennial Homeowners Driving Home Improvement Spending
Determined to become homeowners in today’s competitive housing market, Millennials have found a new way to get what they want out of their home purchase; home improvement. In many metros, especially high-cost areas with rising home prices, first-time home buyers like Millennials have found choosing to buy a home that needs renovation or repair allows them to become a homeowner sooner and start building valuable home equity from their real estate investment. CNBC reported last year, homeowners who had mortgages experienced an 8% annual equity increase, adding up to $678 billion in excess home equity or approximately $9,700 per homeowner.
In 2018, 33-year-olds made up the largest share of first-time home buyers. After the fallout from the Financial Crisis, these “children of the Recession” are approaching real estate purchases with investing in mind and major home improvement retailers are noticing. In Home Depot’s last quarterly report, revenue had increased 5.7% year-over-year, up $26 billion. Chief Financial Officer, Carol Tomé, explained, Millennial first-time home buyers want to work on their homes because they understand it’s a good investment. She said, “people are coming in and doing major projects,” like a kitchen or bathroom upgrade or finishing a basement.”
When buying a home in need of improvement, it’s important to establish your limits ahead of time. If you have been saving for this project, networking with local contractors, and, if needed, have somewhere else to live while the repair takes place, you’ll have a broader selection of homes from which to choose. If you’ve never completed any home repair projects before, you will be stretching your savings buying a home in the first place, and are better off to start with smaller projects.
The way you pay for that renovation matters too. Financial Services Company, Freedom Debt Relief, found that almost two-thirds of 1,028 homeowners with at $10,000 or more of unsecured debt were willing to go into more debt to finance a repair or renovation project on their home. Putting an expensive renovation project on a high-interest credit card may cost more over time than withdrawing home equity through a cash-out refinance and improving your home’s value. The type of renovation matters too. Think function over feature. Style-specific changes may appeal to you but won’t net the resale value of new appliances or HVAC or plumbing upgrades.
Look at your home as an investment and evaluate whether or not your planned renovation or repair will get you a return on that investment.