This year, home improvements could again be a big deal. Here’s Why.

The Key Takeaways

• Some estimates claim that homeowners could tap into trillions of dollars in equity to finance renovations.
• Home improvement spending rose at an annualized 8% rate in the first half of 2024, according to Goldman Sachs economists, who said in a recent report that rising home equity "presents a tailwind for continued spending growth."
• Mortgage rates have increased since the Pandemic. However, homeowners that locked in low mortgage rates before the crisis are reluctant to switch.

Many Americans have upgraded their homes rather than moving because of high mortgage rates and prices. Experts predict that this could be the case in 2025.

Some estimates suggest that homeowners could access Home Equity Lines of Credits to finance renovations. Others, on the other hand, think that an older U.S. house supply could be ripe for updating.

"For most people, it doesn't make sense financially to move," said Ben Carlson, director of Institutional Asset Management at Ritholz Wealth Management. "So if people are going to be staying in their houses longer, and they have all this equity just sitting there, for a lot of them, it's going to be hard to ignore,"

Home improvement spending rose at an annualized 8% rate in the first half of 2024, according to Goldman Sachs economists, who said in a recent report that rising home equity "presents a tailwind for continued spending growth."

Low mortgage rates and rising property values keep home owners in their homes

Americans' have seen their homes' values climb as competition in the housing market increased after the pandemic. National Association of Realtors reports that the average homeowner has increased their housing wealth by $147,000 over the past 5 years.

HELOCs have become more popular as the home value has reached a historically high level. According to ICE Mortgage Technology (a housing and mortgage data service), homeowners had $11.2 trillion of tappable value, or equity they could access, as of November.

Homeowners who secured low rates on mortgages during the pandemic do not want to give them up for higher rates. Goldman Sachs Research reports that 85% of mortgages have rates below the current market.

The low mortgage rates have encouraged many homeowners to keep their home for longer. Three-fifths of homeowners said their low mortgage rates influenced their decision not to sell and, instead, build up their home's growing equity, according to TD Bank.

Mortgage rates are expected to fall slightly above 6% next year, according to the NAR, lower than in 2024 but still higher than the majority of homeowners' mortgage rates. 

"With most homeowners locked into low-rate mortgages, lower rates will likely disproportionately boost spending on renovations," Goldman Sachs economists wrote.

Home renovations are expected to remain popular in 2025, according to experts

Recently, renovations have become very popular. According to Nationwide Insurance, more than half of homeowners have completed major renovations in the last two years.

However, they are also expensive. According to Clever Real Estate, 78% of homeowners undertaking a major home renovation go over budget and nearly two thirds end up in debt. According to TD Bank, more than half of home owners who have taken out a loan for equity use it as a means to renovate their homes.

"Home equity loans are usually recommended for homeowners who want to remodel their home, as you are adding value to your home, which, in theory, will help you when you eventually sell the house or pass it on," Carlson said.

According to Realtor.com, while lenders don’t allow the full amount of equity to be lent, it has reached its highest ever level, with a total value of $35.1 trillion. Lowe’s Cos. executives (LOW) recently stated that they anticipate home values continuing to increase and personal disposable income exceeding inflation.

Meanwhile, they said, homes—which reached a median age of 41 in 2024, the oldest median age in U.S. history—will continue to age and need renovations.

“Existing homeowners are likely to continue investing in repairs and upgrades to their homes," said Marvin R. Ellison, president and chief executive officer at Lowe's, in its third-quarter earnings call. "Especially as interest rate pressures ease, we expect that homeowners will start to tap into the record $35 trillion in home equity to finance larger home improvement projects.”

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