2nd Mortgages At Risk As Remodeling Projections Show Decline

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2nd Mortgages At Risk As Remodeling Projections Show Decline

Mar 12, 2023 | News | 0 comments

According to a recent report from the Joint Center for Housing Studies of Harvard University, the growth of home remodeling in the United States is expected to decelerate steeply in 2023. This slowdown poses a hurdle for the burgeoning home-equity lending industry, which relies heavily on home-improvement activity to drive volume.

The Leading Indicator of Remodeling Activity, which provides a short-term outlook for owner-occupied home improvement and repair spending, has shown gains in recent years, increasing from 408 in Q4 2020 to 472 in Q4 2022. However, projections for 2023 predict a significant decline in year-over-year gains, dropping from 16.3 percent in the latest quarter to just 2.6 percent a year later.

This expected slowdown is due to a combination of factors, including a decrease in existing home sales, house price appreciation, and mortgage refinancing activity, as well as concerns over a broader economic recession. As a result, homeowners are expected to focus their spending on necessary replacements and smaller projects rather than high-end discretionary projects.

Home improvement activity is a crucial driver of home-equity lending, as it is one of the underlying components of a home-equity forecast. According to Vikram Gupta, Executive Vice President and Head of Home Equity at PNC, he looks at things like sales at Home Depot, contractor activity, and lumber consumption to gauge whether people are still doing home-improvement projects or not.

Gupta emphasized that home-improvement activity is a significant driver of the industry’s volume, and a slowdown in this area will undoubtedly impact the home equity lending industry. While the outlook for the industry remains uncertain, it is clear that the expected deceleration in home remodeling will have implications for home-equity lenders and those in the broader home-improvement sector.