Will high inflation and fear of recession lead to a decrease in renovations?

During the height of COVID-19, it seemed like everyone knew someone who bought a house and then remodeled the kitchen, created a home office or gym, or turned a crappy backyard into an outdoor oasis.
But as the epidemic enters its fourth year, most people are no longer trapped in their homes obsessing over every flaw. The apartment buying frenzy that usually spurs renovation works has died down. And many people are more concerned about high inflation and the looming threat of a recession than the dream of having an ensuite bathroom.
Where does this leave the renovation industry? In pretty good shape, say most experts. Homeowners are expected to spend even more on renovations, repairs and maintenance in 2023 than in 2022.
"We expect the market to continue to grow, just not as fast as it has been in the last two years," says Abby Will, a senior research fellow at the Joint Center for Housing Studies at Harvard. "Even if we are in a recession in 2023, I wouldn't necessarily expect the renovation market to decline."
Homeowners are expected to spend $448 billion nationally in the first quarter of 2023, according to the center. That's about a 34.1 percent increase from the $334 billion spent by homeowners in the first quarter of 2020, according to data from the Center's Leading Indicator of Remodeling Activity, or LIRA.
The state's housing stock is aging, and older homes need repairs, maintenance and updates. And despite the turmoil in the economy and financial markets, homeowners have high levels of equity they can tap into to finance the work.
"These things will continue to encourage the remodeling market," says Paul Emerth, vice president of survey research and housing policy at the National Association of Home Builders. "People have savings and equity in their homes ... so they're not as dependent on loans."

Homeowners are not slowing down their renovation work

Even with a dramatic drop in home sales and the increasingly worrisome state of the economy, only 1 percent canceled their remodeling plans in 2022, according to a survey of nearly 4,000 Houzz users in mid-October.
"We expect nearly half of homeowners to renovate in 2023," says Houzz economist Marin Sarasian. "This may be less than the actual share they renovated in 2022, although it is still a significant activity for the industry."
Many homeowners are delaying their plans to upgrade or downgrade new homes in the face of high mortgage interest rates and the risk of a recession. So they are more likely to steer clear of non-essential renovations, such as installing new kitchen cabinets or adding a sunroom, in favor of replacing a roof or boiler system if they plan to stay in the property for a longer period of time.
"Replacement projects, like roofing and systems and equipment, the parts of the house that may wear out, have to happen sooner or later," Will says. "We have an aging housing stock."
The top system upgrades were electrical, plumbing, heating and security, according to a Houzz survey.
Meanwhile, the most popular room renovations were bathrooms and kitchens, according to Houzz. Homeowners who updated the exterior of their residence were more likely to install new windows, skylights, and doors; paint the exterior of their homes; and improve their balconies.

The renovation industry still faces several challenges

While homeowners will continue to spend more on remodeling in 2023 than in 2022, the rate of growth will slow, especially as the number of home sales declines.
Amarth predicts that some homeowners will reduce the scope or cost of their renovations, especially as higher interest rates make borrowing more expensive.
Renovators were still optimistic in the third quarter of the year, though their optimism has waned over the past year, according to the National Home Builders' Remodeling Index. This could be at least partially due to the impact of fewer home sales expected in the coming year.
"A lot of renovations tend to happen around the sale of a home," Will says. The sellers are spending money fixing up their homes and getting them ready for marketing. Then "recent buyers tend to spend quite a bit more in the first few years after buying a home."