The Home-Renovation Boom Could Last for Years... Starting Now By Sean Michael Cummings, analyst, True Wealth
America's housing supply has never been older... In 2021, the median age of U.S. homes reached 41 years. That's an expensive problem for homeowners... because after a house reaches 20 years of age, repair spending spikes by about 15%. Half of all owner-occupied homes today were built before 1980. So roughly 1 in 2 American homeowners is dealing with elevated repair costs already. You might be one of them. And as for the other half, it's only a matter of time. Homeowners already need to fix up their spaces... But now, several drivers are adding urgency to this trend. And that means investors should expect a major renovation boom here in the U.S. Let me explain...
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The American housing supply is aging for a simple reason. After the housing bust, builders stopped putting up new homes – for years. They still haven't made up the gap. And since we aren't getting enough new homes on the market, the average home age continues to advance. But aging homes need maintenance... or they become dangerous. Almost 2.8 million owner-occupied homes today are considered "inadequate," according to the U.S. Department of Housing and Urban Development ("HUD"). And that's not counting millions of renter-occupied homes in the same condition. By "inadequate," HUD means these homes come with risks that could harm – or even permanently disable – the residents inside. That covers a wide range of structural problems, including "large holes and leaks." Some of these homes don't even have basics like power, plumbing, water, or heat. Even worse, homes that HUD labels "adequate" may still be in bad shape or pose risks to health or safety. This means a growing amount of home-improvement spending simply can't wait any longer. If you're one of the folks who knows this firsthand, then chances are, you know there's no running away from the problem, either... And it solidifies plenty of future renovations in the U.S. That's because – like it or not – a lot of homeowners are "stuck" in their homes today. The incredible rise in mortgage rates has seen to that. Mortgages are now darn close to breaking 8%... something no one would have thought possible just a couple of years ago. High rates haven't crushed most homeowners for a key reason: Most of these folks secured their mortgages in the past, at lower rates. About 9 in 10 homeowners have sub-6% mortgages today. And of those, the majority were able to lock in rates below 4%. That means that if you own a home already, you have a massive incentive to stay put. If you don't, you'll reset your rate and drastically increase your housing costs. It seems unlikely that this trend will reverse anytime soon. The Federal Reserve has promised "higher for longer" interest rates in its quest to stamp out inflation. For now, we expect the mortgage rate to remain elevated... and existing homeowners to continue shunning the market. These homeowners will save a lot of money in financing. But they'll still need their houses to be safe and well maintained – and, like all of us, they'll want space and comfort too. As a result, millions of would-be movers will stay put... take on additional upkeep... and make larger renovations to turn the homes they're stuck with into the homes they'd rather own. A renovation boom is beginning in the U.S. It should last for years to come... And as an investor, this trend must be on your radar. Classic "fixer upper" investments – like decor and home-improvement stocks – are likely to do well as it plays out. Good investing, Sean Michael Cummings Further Reading "Homebuilders have been putting up fewer homes – while the U.S. population has been rising," Brett Eversole writes. As a result, inventory has plummeted. But you might not realize just how crazy the housing shortage is today... Get the full story here. Homebuilders are working to close the gap in U.S. housing supply. We need what they're selling – and we will for years to come. Despite this, the crowd has turned its back on a major homebuilder fund. But it would be a mistake to give up on these stocks forever... Read more here. |
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