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9. Government-Backed Loans
The Federal Housing Administration backs several home renovation loan options offered through private lenders.
If your renovation goal is to make your home more livable, useful, accessible or energy-efficient, you might qualify for a Title 1 fixed-rate loan. The maximum loan amount for a single-family home is $25,000, and amounts less than $7,500 are usually unsecured. The payout is a lump sum, and the interest rate is fixed.
If you need to borrow more than $25,000, you might qualify for a 203(k) loan (for major work). This combines a renovation loan with a mortgage. A portion of the loan goes toward purchasing the home, and the rest is paid to the contractor as needed. The interest rate can be fixed or variable.
This article was originally published by a www.houzz.com . Read the Original article here. .
The NAHB/Westlake Royal Remodeling Market Index (RMI) posted a reading of 68 for the fourth quarter of 2024, up five points compared to the previous quarter.
Remodelers are more optimistic about the market than they were earlier in the year, corroborated by NAHB’s recent analysis of home improvement loan applications. Demand in many parts of the country was stronger than usual for the fall season, especially demand for larger projects, with leads coming in after the uncertainty about the November elections was removed. Not only did the current conditions index for $50,000-plus projects show the greatest increase during the quarter, but the share of remodelers doing whole house remodeling reached a record high of 62%.
The RMI is based on a survey that asks remodelers to rate various aspects of the residential remodeling market “good”, “fair” or “poor.” Responses from each question are converted to an index that lies on a scale from 0 to 100. An index number above 50 indicates a higher proportion of respondents view conditions as good rather than poor.
Current Conditions
The Remodeling Market Index (RMI) is an average of two major component indices: the Current Conditions Index and the Future Indicators Index.
The Current Conditions Index is an average of three subcomponents: the current market for large remodeling projects ($50,000 or more), moderately sized projects ($20,000 to $49,999), and small projects (under $20,000). In the fourth quarter of 2024, the Current Conditions Index averaged 75, increasing three points from the previous quarter. All three components remained well above 50 in positive territory: large remodeling projects rose eight points to 75, moderate remodeling projects increased two points to 73, and small remodeling projects inched down one point to 76.
Future Indicators
The Future Indicators Index is an average of two subcomponents: the current rate at which leads and inquiries are coming in and the current backlog of remodeling projects.
In the fourth quarter of 2024, the Future Indicators Index was 61, up six points from the previous quarter. The component measuring the current rate at which leads and inquiries are coming jumped nine points to 62. Meanwhile, the component measuring in the backlog of remodeling jobs rose two points to 59 quarter-over-quarter.
For the full set of RMI tables, including regional indices and a complete history for each RMI component, please visit NAHB’s RMI web page.
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1. Larger Kitchens Borrow Space From Dining Rooms
While most homeowners (64%) keep their kitchen about the same size as the original during a remodel, more than a third (35%) increase the footprint. To gain more square footage, some homeowners steal space from a dining room (29%) or a living room (12%). Nearly 1 in 5 homeowners (18%) builds a home addition, while a smaller portion incorporate space from hallways (10%) and closets (7%).
After renovations, a majority of homeowners (53%) have a kitchen that measures 200 square feet or more, up 1 percentage point year over year. Midsize kitchens (100 to 199 square feet) account for 34%, while 13% of renovated kitchens are less than 100 square feet.
“Nearly half of the homes in the U.S. are 42 years old or older and were built to serve homeowners of a different era,” says Marine Sargsyan, Houzz staff economist. “As kitchens take on a more centralized role in daily activities, homeowners are choosing to surrender neighboring rooms and exterior spaces for additional kitchen square footage to meet their needs.”
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1. Stain It Again
Designer: Kirby Foster Hurd of Kirby Home Designs
Location: Edmond, Oklahoma
Project. A new-construction spec home. “We collaborated with the builder, MassaRossa Luxury Homes, who allowed me full design creativity to create a space that would appeal to the masses,” designer Kirby Foster Hurd says.
“Uh-oh” moment. “The entirety of the kitchen cabinets are stain-grade maple wood,” Hurd says. “We created a custom stain by combining various stain colors together to get a light stain color. And we finished the cabinets with a matte finish.
“When I walked in to check in on the staining process, the cabinets were extremely dark. I had a panic moment for sure. We go through a very detailed process of stain samples on the same species of wood we are using in each particular project, so I was absolutely shocked when I saw the kitchen cabinets and how they were not representative of the prior stain sample I reviewed and approved. Unfortunately, the custom stain color had been matched incorrectly at the paint store.”
Solution. “Luckily, we work with very talented painters,” Hurd says. “They sanded the original cabinet color off and we started the whole process over again. Second time was a charm.”
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Residential improvement spending softened in 2023 due to elevated interest rates, high inflation, and sluggish home sales. According to the Bureau of Economic Analysis’ National Income and Product Accounts (NIPA), expenditures for residential home improvements rose 2% to $363 billion in 2023, from $356 billion in 2022. The 2% year-over-year (YOY) gain in 2023 marks the smallest YOY gain since 2011. This annual data indicates that the YOY gain in residential improvement spending slowed, but the remodeling market remained solid.
In this article, NAHB’s analysis of the 2023 Home Mortgage Disclosure Act (HMDA) data provides insight into remodeling activity in 2023 by age group, and by U.S. states and counties. The 2023 HMDA data, published by the Consumer Financial Protection Bureau (CFPB), covers detailed information on residential mortgage lending in 2023, including the type, purpose, and characteristics of home mortgage applications or purchased loans, and demographic and other information about loan applicants.
According to the 2023 HMDA data, the number of home improvement loan applications declined by 17% in 2023, compared to the previous year. Moreover, the total amount of home improvement loans was about 44 billion (24%) less than the total amount in 2022.
Age Group Analysis:
Figure 1 below presents the number of home improvement loan applications by applicants’ age from 2018 to 2023. Among all age groups, the number of home improvement loan applications surged in 2022 and declined in 2023. Compared to 2022, the number of home improvement loan applications decreased by 23% in 2023 for applicants aged between 25 and 34 and between 35 and 40. Applicants between the ages of 45 and 54 remained the largest age group to apply for home improvement loan applications, even though the number of loan applications for this age group reduced by 18% in 2023.
For applicants under 55 years old and above 74 years old, the number of loan applications in 2023 was higher than the pre-pandemic level in 2018 and 2019. Meanwhile, applicants aged between 55 and 74 had a lower number of loan applications in 2023 than in 2018 and 2019. As interest rates reached historically high levels in 2023, homeowners used savings to pay for home improvements, avoiding the extra expense of interest on loans.
State-Level Analysis:
While remodeling activity changed among different age groups, remodeling has also varied across geographic locations due to the cost of living, local economic conditions, and house prices.
With respect to total home improvement loan applications, California had the highest number of home improvement loan applications in 2023, with 118,649 applications. Florida came in second with 102,746 home improvement loan applications. Wyoming and Alaska had the lowest total numbers of home improvement loan applications with 1,312 and 1,358, respectively.
When we look at home improvement loan applications per 1,000 population, two states in New England, Rhode Island and New Hampshire, had the highest number of home improvement loan applications, with a rate of 6.4 and 6.0 applications per 1,000 population, respectively. Louisiana had the lowest number of home improvement loan applications, with a rate of 1.6 applications per 1,000 population.
In total, there were 3.7 loan applications for home improvements for every 1,000 population in the United States. California, the most populous state of the United States, reported 3.0 applications per 1,000 population, which is lower than the national average rate.
County-Level Analysis:
The analysis of county-level home improvement loan applications per 1,000 population reveals that the aggregate market population is not significantly related to the number of per capita home improvement loan applications. In 2023, the top 10 most populated counties in the United States had an average rate of 2.6 loan applications per 1,000 population. Los Angeles County in California, one of the most populous counties, reported a rate of 2.8 loan applications per 1,000 population in 2023. Meanwhile, some counties with a lower population had a higher loan application rate (that is, the number of home improvement loan applications per 1,000 population). For example, Nantucket County in Massachusetts, with a population of about 14,000, had the highest loan application rate of 11.1 among all the counties in the United States. Camas County in Idaho, with roughly one thousand population, had a loan application rate of 8.9, higher than about 99.7% of the counties in the United States.
Additionally, the analysis finds that home improvement loan applications are relatively more common in the Mountain and New England Divisions. In total, there were 43 counties that reported 7 or higher home improvement loan applications per 1,000 population, and more than 72% of these counties were in the Mountain and New England Divisions. None of these 43 counties were in the West South Central, East South Central, or West North Central Divisions. The top five counties with the highest home improvement loan application rate were: Nantucket County (MA), Grand Isle County (VT), Dare County (NC), Boise County (ID), and Barnstable County (MA).
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The NAHB/Westlake Royal Remodeling Market Index (RMI) for the third quarter of 2024 posted a reading of 63, down two points compared to the previous quarter.
Remodelers remain optimistic about the market even though the overall RMI edged down for the third consecutive quarter. Some have potential customers citing the upcoming election as a reason for putting large projects on hold. Remodelers also continue to face various headwinds such as difficulty finding skilled construction labor and higher interest rates. Nevertheless, the overall RMI reading of 63 is consistent with NAHB’s forecast for steady 2% growth in remodeling spending over the next two years.
The RMI is based on a survey that asks remodelers to rate various aspects of the residential remodeling market “good”, “fair” or “poor.” Responses from each question are converted to an index that lies on a scale from 0 to 100. An index number above 50 indicates a higher proportion of respondents view conditions as good rather than poor.
Current Conditions
The Remodeling Market Index (RMI) is an average of two major component indices: the Current Conditions Index and the Future Indicators Index.
The Current Conditions Index is an average of three subcomponents: the current market for large remodeling projects ($50,000 or more), moderately sized projects ($20,000 to $49,999), and small projects (under $20,000). In the third quarter of 2024, the Current Conditions Index averaged 72, declining one point from the previous quarter. All three components remained well above 50 in positive territory: the component measuring small-sized remodeling projects (under $20,000) rose two points to 77, while both the component measuring moderate remodeling projects (at least $20,000 but less than $50,000) and the component measuring large remodeling projects ($50,000 or more) fell three points to 71 and 67, respectively.
Future Indicators
The Future Indicators Index is an average of two subcomponents: the current rate at which leads and inquiries are coming in and the current backlog of remodeling projects.
In the third quarter of 2024, the Future Indicators Index was 55, down three points from the previous quarter. Quarter-over-quarter, the component measuring the backlog of remodeling jobs fell three points to 57 and the component measuring the current rate at which leads and inquiries are coming in dropped two points to 53.
For the full set of RMI tables, including regional indices and a complete history for each RMI component, please visit NAHB’s RMI web page.
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1. Overall Spend Rises, Minor Remodels See Uptick
First, let’s take a look at what’s often the first consideration when remodeling a bathroom: cost. As with many products and services, median spend on all bathroom remodels has risen — up 11%, from $13,500 in 2022 to $15,000 in 2023. The rise is due to an increase in the median spend for major remodels (in which at least the shower is upgraded) and minor remodels (those without a shower upgrade).
The median spend on major remodels rose 5%, from $20,000 in 2022 to $21,000 in 2023. Over the same period, the median spend on minor remodels increased from $8,000 to $8,500. For minor remodels of larger bathrooms (100 or more square feet), spend rose 15%, from $10,000 in 2022 to $11,500 in 2023. For minor remodels of smaller bathrooms (less than 100 square feet), spend rose 20% year over year, from $5,000 to $6,000.
Keep in mind, economists like to reference the median, or midpoint, figure rather than the average for this kind of data because the average can be skewed, can be volatile year over year and can be misleadingly high or low because of a single project that costs far more or less than others.
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In the latest 2023 NAHB member census, 21% of NAHB builder members listed residential remodeling as their primary business. These remodelers tend to be relatively small, with a median of five employees and a median annual revenue of $1.8 million. They are thus even smaller than NAHB builder members in general, who had a median of six employees and median annual revenue of $3.4 million, as reported in a recent post.
Among the residential remodelers, 21% reported a dollar volume of less than $500,000 in 2023, 20% reported between $500,000 and $999,999, 47% between $1.0 and $4.9 million, 8% between $5.0 and $9.9 million, 2% between $10.0 million and $14.9 million, and another 2% reported $15.0 million or more. None reported zero business activity in 2023.
The median annual revenue for residential remodelers in 2023 was $1.8 million—considerably below the $3.4 million median calculated across all NAHB builder members, and a small fraction of the $45.0 million threshold the Small Business Administration uses to classify construction businesses as small. Even so, residential remodelers’ median revenue was up from the $1.2 million recorded in 2022.
The median number of payroll employees was also relatively small among NAHB’s residential remodelers in 2023—five, compared to six for all NAHB builder members. Both numbers were unchanged from 2022.
To provide a measure of housing activity roughly analogous to starts, the NAHB census asked builder members who are primarily or secondarily residential remodelers about the number of remodeling jobs they completed in 2023 costing $10,000 or more. The responses show that a plurality of 39% completed 1 to 5 jobs of this size, 16% did 6 to 10, 22% did 11 to 25, 15% did 26 to 99, and 3% completed 100 or more jobs costing more than $10,000. On average, builder members involved in residential remodeling as a primary or secondary activity completed 20 jobs costing $10,000 or more in 2023. The median number was 7.
The numbers are significantly higher if the calculations are confined to the 21% of NAHB builder members who list residential remodeling specifically as their primary activity. These members completed an average of 32 and a median of 15 $10,000-plus jobs in 2023. These results are not significantly different from the ones reported in 2022, when NAHB first included the remodeling jobs question in its member census.
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Prepare Clients for Construction
Start by setting a target date for construction, then give the homeowners clear instructions on how to prepare for their remodel. “Depending on the project, a homeowner may need to remove all items from kitchen or bathroom cabinets, or any other furniture that we’ll need to move to lay floor tile, for instance,” Palacio says.
It may be helpful to have a pre-construction meeting with the client, during which you discuss safety concerns, noise tolerance and limited access to living space. “We talk about where they are going to live and work during our planning process, and about how they will prepare to pack and move their belongings,” Bettinger says. Her team also sends clients a document with more details on how to prepare for construction.
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The Federal Housing Administration backs several home renovation loan options offered through private lenders.
If your renovation goal is to make your home more livable, useful, accessible or energy-efficient, you might qualify for a Title 1 fixed-rate loan. The maximum loan amount for a single-family home is $25,000, and amounts less than $7,500 are usually unsecured. The payout is a lump sum, and the interest rate is fixed.
If you need to borrow more than $25,000, you might qualify for a 203(k) loan (for major work). This combines a renovation loan with a mortgage. A portion of the loan goes toward purchasing the home, and the rest is paid to the contractor as needed. The interest rate can be fixed or variable.