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It's no surprise that Americans are hitting the brakes on home renovation projects. With borrowing costs soaring and a housing market recovery still out of reach, many are opting for more budget-friendly solutions. Two of the country's leading home improvement giants have noticed this trend, reporting a decline in big-ticket purchases traditionally funded by loans. Home Depot (NYSE: HD) noted a 6.5% drop in transactions over $1,000 year-over-year for the first quarter.
William Bastek, Home Depot's executive vice president of merchandising, commented, "We continue to see softer engagement in larger discretionary projects where customers typically use financing to fund the projects such as kitchen and bath remodels." Similarly, Lowe’s (NYSE: LOW) observed a shift from multiple-item purchases to single items, pushing comparable sales down by 6.2% in the quarter. Despite these setbacks, both companies continue to stay relevant, adjusting strategies to cater to cost-conscious consumers.
The pandemic era was a golden time for home improvement, driven by ultra-low interest rates that spurred housing sales and remodeling projects. However, the economic tides have shifted, with higher rates leading homeowners to delay significant investments in renovation. Many are now focused on less costly DIY solutions, seeking more affordable upgrades rather than comprehensive overhauls.
A quarterly survey by John Burns Research and Consulting revealed that homeowners are increasingly opting for budget alternatives in essentials like cabinets, flooring, lighting fixtures, and countertops. "These downgrades are becoming more common with cost-conscious consumers," remarked Matt Saunders, senior vice president of building products research at John Burns. Indeed, total spending on home improvement and repairs is projected to decline by over 7% in the third quarter to $451 billion, according to the Joint Center for Housing Studies at Harvard University.
The pinch of high costs is palpable among homeowners. Tim Poterek from West Branch, Mich., is a vivid example. Previously a fervent DIY enthusiast during the pandemic, Poterek now takes a more cautious approach. "To replace anything nowadays is just ridiculous," he said, citing skyrocketing prices for materials and higher interest rates on credit. Rather than replacing his shower stall, Poterek opted for a $25 to $30 repair, thanks to advice from Facebook DIY groups. "Usually, I get really good ideas and great feedback," he added.
According to John Burns, about 36% of consumers have paused or delayed projects, and 30% are reducing their remodeling expenditure. This trend has created a temporary lull in the renovation market, but some experts see potential catalysts for a rebound. The National Association of Home Builders reported a slight dip in remodeler confidence for the first quarter. Rising household wealth could soon rejuvenate the market. "Half of homeowners today are living in homes that are at least 40 years old, and that alone is really helping to drive a lot of the replacement spending that has been happening," said Abbe Will from Harvard's housing studies center.
While the current pause on large-scale renovations is understandable, it's likely just a temporary setback. As economic conditions stabilize and consumer confidence rises, homeowners are expected to dive back into remodeling projects, potentially leading to a timely boost for both Home Depot and Lowe’s in the near future.
