Record-high home prices and high mortgage rates have put many people who want to buy a home on hold. Now, people who want to make changes to their homes are waiting.
Earnings reports from two home-improvement companies show that homeowners have cut back on home projects and renovations, even though house values have gone up a lot in the past year. This is partly because homeowners are worried about inflation and interest rates.
On August 13, Ted Decker, chairman, president, and CEO of Home Depot HD 0.79%, said that higher interest rates have had an effect on the housing market and housing turnover, which means how quickly homes change hands. Decker said, “That’s also making customers less interested in financing bigger projects.”
“They are putting off those projects because everyone thinks rates will go down,” he said.
He said, “there’s just a lot of noise with [the] political and geopolitical environment” as worries about the business as a whole have grown. Decker said that “people just took a pause” because unemployment was going up and inflation was still eating away at people’s extra cash.
In the same way that buyers have been waiting to buy homes until mortgage rates and prices go down, homeowners are also choosing to be patient, Lowe’s LOW 0.59% CEO Marvin Ellison said on the company’s second-quarter results call on Tuesday.
“We are all aware that we are living in a time of high inflation and interest rates,” the CEO said. “And that’s why the [do-it-yourself] customer is just sitting there, waiting for some kind of transformation to happen.”
At the same time, some people who want to buy a house also seem to be waiting, but for different reasons. A recent report from the real estate company Redfin RDFN -0.60% said that buyers may be putting off plans to buy because of the uncertain political climate around the 2024 presidential race. One real estate broker told Redfin that “it’s unclear where the country will be in six months.”
It’s important for homeowners to be careful, even though their home values have gone through the roof over the past few years, unlike home buyers who have to deal with record-high home prices and high mortgage rates.
The National Association of Realtors says that the typical price of a home went up from $285,700 in June 2019 to $426,900 in June 2024.
Home prices have gone up quickly, and many people have taken advantage of this by getting home-equity lines of credit, which are often used to pay for home improvements. A study from the Federal Reserve Bank of New York says that balances on home equity lines of credit, or HELOCs, went up by 20% between 2021 and 2023. TD Bank polled homeowners in November 2023 and found that 38% of those who planned to remodel in the next two years were using or were planning to use a home equity loan or home equity line of credit to pay for the work.
Some homes are putting off renovation plans, but others have gone ahead with them because they are “locked in” by very low mortgage rates. These people own homes and don’t want to move because the new house will have a much higher mortgage rate. Many people don’t want to sell their homes because 86% of mortgage debt has an interest rate of less than 6%, which is less than the current rate of 6.49%.
Home repair stores like Home Depot and Lowe’s have done well as people have hunkered down. Ellison said, “Put simply, people aren’t moving nearly as often as they normally do because mortgage rates are so much higher than they were before.”
He said that Lowe’s business was still driven by strong core drivers. “Home prices keep going up, which is keeping home equity at historically high levels…” “People will need to fix up and improve their homes because the housing stock is getting old,” Ellison said.
Rates have gone down, which has caused some homeowners to refinance their mortgages and take out wealth from their homes. This is helping some parts of the housing market recover from their slump.
Fannie Mae data shows that the number of refinances was 77% higher as of August 16 than it was during the same time last year.
